Second, a landowner who meets the new tests for "qualified farmers and ranchers" can take the deduction up to 100% of AGI (for individuals), or up to 100% of taxable income (for corporations), also with a 15-year carryforward.

A "qualified farmer or rancher" is generally defined under the new law as an individual (or a corporation) whose income from farming or ranching is greater than 50% of his total AGI. According to the new statute, "qualified farmer or rancher" means a taxpayer whose "gross income" from the business of farming (as defined under Section 2032A(e)(5) of the tax code) is greater than 50% of the taxpayer's gross income for the taxable year in which the conservation easement is donated. This definition applies to individuals and to corporations. For purposes of this incentive, farming, ranching, other kinds of agricultural activities, and forestry use will satisfy the requirements of the statute; I use the term "farming" here to cover all of these activities.

As one example, a landowner (individual or corporate) who has $50,000 of "gross income," all of which comes from the business of farming, is a "qualified farmer or rancher." A landowner with $200,000 of "gross income," $40,000 of which is from ranching, is not. Again, landowners must check with their own advisors about whether or not they are eligible to take advantage of the 100% incentive. (One of the things we do not know is precisely how "gross income" is defined; see below.)

The second requirement to be eligible for the 100% incentive is that the conservation easement must include a restriction that the property remain available for agricultural purposes. It is not 100% clear what this means, but there is some guidance on this point. See the discussion below. Because this particular requirement was added to the statute late in the deliberations, it only applies to conservation easements donated after the date the statute becomes law.

In other words, easements by "qualified farmers or ranchers" donated after December 31, 2005, and before August 17, 2006, apparently do not need to include this specific language to be eligible for the 100% deduction (although they almost certainly will include such language if the landowner plans to continue farming activities!!). At this early point, all of the ramifications of this requirement are not clear, but in the vast majority of farming and ranching situations it should be easy to satisfy this requirement with careful drafting in the conservation easement.

For corporate donors, the "only" new incentive is the 100% incentive, and apparently both the "qualified farmer and rancher" and the "remain available for agriculture" requirements must be met. Apparently, however, if an individual who is a "qualified farmer or rancher" donates a conservation easement that does not include this reserved right for continuing agricultural activities, the easement donation could still be taken up to 50% of AGI with a 15-year carryforward.

"…assume an individual with a contribution base of $100 makes a qualified conservation contribution of property with a fair market value of $80 and makes other charitable contributions subject to the 50% limitation of $60. The individual is allowed a deduction of $50 in the current year for the non-conservation contributions (50% of the $100 contribution base) and is allowed to carryover the excess $10 for up to 5 years. No current deduction is allowed for the qualified conservation contribution, but the entire $80 qualified conservation contribution may be carried forward for up to 15 years." (emphasis added)

Put another way, if a donor has made contributions other than these new conservation contributions during the year, those contributions are "used up" first against the existing limitations. After those contributions are used to the maximum allowable extent, then the conservation contributions are taken into account.

Here is another example. Say an individual has AGI of $100, writes a check to the local land trust for $40, and donates a conservation easement with a value of $80. First the $40 contribution is used up, then $10 of the $80 easement contribution is used up, for a total of $50, that is, 50% of the individual's AGI. There is a carryforward, for up to 15 years, of $70 of the conservation easement contribution.

When the conservation contribution can be taken up to 100% of an individual's AGI, here is how this provision works, again according to the Joint Committee report:

Assume that a donor with a contribution base of $100 makes a qualified conservation contribution with a value of $80 and has made other cash or check contributions, subject to the existing 50% limitation, of $60. In this case, the donor may take $50 of the non-conservation contributions (that is, up to 50% of AGI), plus $50 of the conservation contribution. The remaining $10 of non-conservation contributions is available, subject to the old (and existing) 5-year carryforward rules, and $30 of the conservation contribution ($80 minus $50) is subject to the 15-year carryforward rule.

Or, assume an individual with $100 of AGI writes a check to the alma mater for $30, and donates a conservation easement with a value of $100. The donor first deducts the $30 contribution, then $70 of the easement donation (up to a total of 100% of AGI). There is a $30 carryforward, for up to 15 years, from the conservation easement donation.

This tax savings opportunity may be limited!! Once again, although these incentives might be extended, they now apply only to easement gifts made in 2006 and 2007. Once again, this is important: a philanthropic donor should understand that even if she has "maxed out" her charitable gifts for this year, and even next year, a conservation easement donation made in this two-year window will carry forward for 15 years!! This opportunity might not be available in the future.

At the same time, note these two very important observations.

First, as always, any potential donor should be directed to his or her own experienced tax advisor, who can "run the numbers" for any particular situation. Second, as you will see from the spreadsheets, there is at least one very surprising result: in some cases, the total income tax savings from taking the deduction up to 50% of AGI may be higher than the total income tax savings from taking the deduction up to 100% of AGI!!