Creating Incentives for Investments in Lands and Waters
Reforms to America’s tax policy can help incentivize investments in conservation while continuing to support the nation’s charities.
It has long been recognized that tax law has had a significant effect on the charitable sector and on conservation activities. The Nature Conservancy (TNC), along with many others, has developed a number of proposals to amend the tax code to help advance conservation initiatives and support the charitable sector.
TNC helped secure the original federal income tax deduction and IRS regulations for conservation easements, as well as the enhanced tax deductions for such gifts enacted more recently. In addition, TNC worked to secure federal estate tax relief for landowners who place easements on their property.
TNC has also helped a number of states enact state tax credits for conservation activities. Finally, TNC helped get tax incentives enacted in other countries that advanced conservation.
What Can Change
Key tax proposals to encourage land and water conservation:
The Nature Conservancy's Conservation Tax Proposals in Detail
Increase the universal charitable income tax deduction available to all taxpayers. A broad, diverse coalition of charities has been working with Congress to enact the so-called “universal charitable deduction,” or an “above-the-line deduction” to give all taxpayers an incentive for charitable giving. The number of taxpayers able to itemize charitable deductions has declined significantly, especially after the enactment of the Tax Cuts and Jobs Act at the end of 2017. Fortunately, a universal charitable tax deduction was included in the Coronavirus Aid, Relief and Economic Security Act of 2020. This provision (in S. 748 – Section 2204) will increase charitable giving through a relatively modest above-the-line deduction of up to $300 for charitable contributions of cash regardless of whether the individual elects to itemize deductions for tax years beginning after Dec. 31, 2019. The charitable sector will be working to increase the $300 cap to a higher, more meaningful contribution amount in the next coronavirus response bill or in other upcoming legislation.
Create a conservation capital gains incentive. This proposal allows land-rich, cash-poor landowners to realize a greater net return after taxes from a sale of land or the sale of an easement for conservation purposes than from a sale for other purposes. The proposal would enable conservation organizations and agencies purchasing land or easements for conservation to stretch available dollars for such purchases by using this new proposed tax provision and the “bargain-sale” provisions currently in the tax code. In 2016, for example, nearly $4.4 billion was authorized by voters to be invested in nature-based solutions and activities, with 18 of 20 ballot initiatives at the local and state levels passing. The proposal would allow landowners who sell land or an easement for conservation purposes to eliminate the otherwise taxable capital gain from being subject to the federal capital gains tax and, thus, to keep more of the sales proceeds.
Provide tax credits for landowner expenses related to nutrient management, carbon sequestration, soil health and/or green infrastructure for stormwater management. To encourage landowners, the tax code could provide enhanced tax deductions or tax credits equal to the costs and expenses incurred by the landowner in implementing best practices for nutrient management, soil health or green infrastructure objectives. A variation of this proposal would be to provide a federal income tax credit equal to the value of the crop insurance premium that is paid where the landowner has adopted and implemented approved nutrient reduction or soil health practices. Another important conservation objective that could be achieved through tax policy would be to provide an income tax credit to farmers, ranchers, forestland owners and other land users and owners to sequester carbon on their land.
Encourage private capital investment in green infrastructure projects or, in areas where working lands are a component of the landscape conservation plan, through tax incentives. An investor could be offered a federal tax credit for a portion of investment return as well as a reduced financial return in exchange for the investor’s capital investment in a socially worthwhile project or activity, such as a natural infrastructure project which has environmental and societal benefits and financial return on investment. Investors can compete for a fixed pool of credits (or other incentives) to ensure pricing discipline and to reward projects that deliver valued co-benefits. Tax incentives to attract private capital to public benefit projects have been enacted in the past, such as with Build America Bonds and financing for the New York/New Jersey Liberty Zone. The recent tax law, enacted in December 2017, authorized tax benefits for investments in Opportunity Zones, or census tracts which meet certain poverty status thresholds. That new program could be broadened to make conservation-compatible investments eligible for such tax benefits.
Support legislation to maintain the integrity of tax benefits for conservation easements. Syndicated easement transactions rely on abusive appraisals to provide tax benefits to investors. TNC believes this growing practice, which promises real estate investors aggressive tax deductions in exchange for modest cash investments, is wrong. Continued unchecked, such tax shelters will endanger the thousands of legitimate conservation easements and the many landowners and conservation organizations behind them. To address this problem, the conservation community supports the Charitable Conservation Easement Program Integrity Act, S. 170 and H.R. 1992, to disallow a charitable deduction only when a profit is made in a short time from the donation of a conservation easement. TNC is working with the conservation community and supports the proposed legislative changes to the tax code that would tighten the rules governing syndicated easement gifts and also supports the effort of the Internal Revenue Service (IRS) to provide oversight of syndicated easements.
Rectify adverse tax impacts facing conservation-minded landowners in numerous states. In June 2019, the IRS issued a final regulation regarding federal charitable contributions claimed where the taxpayer also seeks state and local tax credits for such gifts. This regulation was designed to prevent states from bypassing the cap on the federal deduction for state and local taxes enacted in the 2017 Tax Cuts and Jobs Act (TCJA). However, the IRS regulation was written so broadly that it also adversely impacts more than 100 state-level tax credit programs in some 33 states, including many state-level conservation tax credit programs. The uncertainty created by the release of this rule is already harming conservation donations. To correct this problem, Congress needs to enact legislation for the narrow purpose of exempting conservation donations from the TCJA’s state and local tax limitation.