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.