Disposition of Development Rights (Conclusion)
Updated: Wednesday, September 10, 2003 8:36 AM
ESTATE TAX BENEFITS
Posted: Tuesday, September 9, 2003 3:48 PM
If an individual or a member of his family contributes a conservation easement, then at the individual's death, his estate may qualify to exclude some of the value of the land subject to the easement from the individual's taxable estate. To qualify for this estate tax exclusion, the easement must meet the requirements for a charitable income tax deduction, the individual or members of his family must have owned the property at all times within the three years immediately prior to the individual's death, and at the time of the contribution of the easement the value of the easement must have been at least 10% of the value of the land without the easement. This exclusion is in addition to the reduction in the land's value resulting from the restrictive easement.
Where the value of the easement contributed was 30% or more of the value of the land immediately prior to the contribution, then the estate tax exclusion is 40% of the value of the land for estate tax purposes. The exclusion percentage is reduced by 2% for every 1% that the value of the easement was less than 30% of the value of the land immediately prior to the contribution. For example, if the value of the easement at the time of the contribution was 15% of the value of the land immediately prior to the contribution of the easement, then the exclusion percentage would be 10%--the 40% maximum exclusion percentage minus 30% (2 times [30% minus 15%]). The value of the exclusion is capped at $500,000 for individuals dying in 2002 or later.
Using our examples above and assuming that the value of the land remains unchanged between the time of the contribution of the easement and the time of the donor's death, the table above shows the estate tax exclusions available.
Leigh McKee and Doug Dean are with the Lexington accounting, tax, and consulting firm Dean, Dorton & Ford, P.S.C. An expanded version of this article is scheduled for publication in the December 2003 issue of
The Journal of Taxation.
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