Ever since the Maine Supreme Court held in the 2014 Francis Small Heritage Trust case that land conservation is a charitable purpose and that conservation land owned by nonprofit land trusts are generally exempt from property taxes, Governor LePage has crusaded mightily against Maine land trusts. LePage recently devoted several minutes of his final State of the State address to a veritable rant against land conservation and land trusts. Fortunately, all of the Governor’s rather unhinged attacks have fallen flat in the face of basic facts. The most recent example comes by way of a legislative committee report on the issue of property taxation of conserved lands.
In late February, the Maine Legislature’s Committee on Agriculture, Conservation and Forestry (ACF) released a Study of Conserved Lands Owned by Nonprofit Organizations. The Conserved Lands Study deals quite a blow to the Governor’s efforts to malign Maine land trusts, concluding that Maine land trusts provide “a myriad of public benefits” and “great value to the residents of Maine.” The Study faults the LePage Administration for failing to provide any data or assistance to the Committee, and in the absence of any government data relied largely on a survey conducted by Maine Coast Heritage Trust, as well as input from various stakeholders.
The Conserved Lands Study is a good read and contains a host of facts that demonstrate the public benefits that Maine land trusts provide. But rather than summarize these figures, I want to assess the state of play in this ongoing debate. Here are the key takeaways from my perspective:
As you are by no doubt aware, Republicans in Congress passed a major federal tax bill in December. For the most part, this bill will affect land trusts in the same ways that it will affect all nonprofit organizations, and I invite you to read my take on that question in my January Nonprofit Law E-Bulletin. Bottom line: expect somewhat reduced annual giving and planned giving levels as fewer and fewer people itemize their taxes or face the threat of owing any federal estate tax liability. And expect reduced federal funding for all government programs, including land conservation. That said, the bottom won’t fall out and land trusts, who enjoy very loyal donor bases, should continue to proceed with fundraising operations as if nothing is amiss.
In fact, instead of fearing the reduced tax savings from charitable giving, savvy fundraisers and conservation dealmakers might want to focus on the fact that because most people will have lower taxes and thus higher disposable income, they can now afford to give more to their favorite charities. A simplified high-value conservation easement donation example shows how this could work, if you want to follow the numbers with me.
Suppose you have a married couple filing jointly with $1 million in adjusted gross income. In 2017, they donated a conservation easement that was appraised at $2 million. Before any deductions and credits were taken into account, this couple owed about $341,000 in federal income taxes. Due to the easement donation, they could claim a charitable deduction of $500K in 2017 and in each of following three years ($500,000 per year because of the 50% of AGI deduction limitation for conservation easements). But a special rule called the Pease limitation kicked in to reduce their deduction by about $20,000 per year, so let’s call it $480,000 in each of these years. Thus, the easement donation led to federal tax savings of roughly $190,000 in each year from 2017 through 2020, and an overall annual tax owed of about $151,000.
Now let’s see how this calculation works under the new tax law in effect for 2018. Before any deductions and credits are taken, this couple’s tax due is about $309,000, roughly $32,000 less than under the 2017 higher tax rates. Once again, they can claim a charitable deduction of $500,000 in 2018 and in each of following three years. And this time there is no Pease limitation because that provision is suspended through 2025. So the easement donation leads to federal income tax savings of roughly $183,000 per year, a bit less than the $190,000 savings under the 2017 rates. But the couple’s overall tax owed is now about $126,000, well below the $151,000 owed under the 2017 rates. Even though the charitable incentives are slightly reduced under the 2018 rates, the couple is in a much better financial position objectively speaking, and the land trust should not hesitate to point this out.
Notes: I’ve taken several shortcuts in this example, and actual results would vary somewhat. State income tax savings are also not calculated, and they could be significant. Finally, although I’m emphasizing that a land trust project person or an independent legal or tax adviser would want to play up the better financial position of the landowners due to the lower tax laws, by no way should that be seen as endorsement of the tax bill. In my view, tax cuts for wealthy people are the last thing that our economy or our polity needs at this time.
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