SC Conservation Incentives Act (H3782, Act 283)

The intent of the act is to: “protect and preserve natural areas and their traditional uses while paying appropriate deference to property rights, expending no state funds, and keeping property in the private sector and on property tax rolls.”

SC tax law generally allows a state income tax deduction for voluntary donations of land or conservation easements that qualify for a charitable deduction under federal tax law. Qualifying for the federal deduction under code 170(h) usually qualifies the donor for the South Carolina tax credit.

In 2005 the SC General Assembly disqualified golf courses for a deduction or credit. The SC Conservation Incentives Act allows a credit of 25% of the value of the donation, with a cap of $250 per acre and an annual limit of $52,500.

The annual credit may not exceed tax liability, but may be carried forward indefinitely until fully used.

The credit is transferable. The landowner may sell, gift, or bequeath credit with written approval. See www.conservesc.com to buy or sell credits.

Safe Harbor Provision for SC Properties Utilizing Forestry and Silva Culture Practices:

Despite being ineligible for a Federal & State Income Deduction under Section 170(h) the state tax credit is allowed for SC properties following forestry and silva culture practices if the property would otherwise qualify for a charitable deduction as set out in Section 170(h).

Post–Mortem

The SC Conservation Incentives Act amends Article 3 of the Probate Code to allow a personal representative of an estate or a trustee of a trust to grant a conservation easement or a fee-simple gift of land for conservation purposes.

This requires written consent from all heirs, beneficiaries and devisees
whose interests would be affected by the donation.

(A post-mortem donation is not eligible for a federal or state income tax deduction.)

SC TAX CREDIT EXAMPLE

A landowner donates a conservation easement on a 2,000-acre reserve. The easement qualifies under Section 170(h) as a charitable deduction so it is eligible for the SC income tax credit. The qualified appraisal values the land at $8,000,000 and the easement at $2,400,000. Although 25% of $2,400,000 equals $600,000, the cap of $250/acre limits the credit to $500,000. The landowner may deduct the lesser of tax liability or $52,500 in any given year. The remainder may be carried forward indefinitely or transferred until the full $500,000 credit is used.

2005 South Carolina Tax Amendments

South Carolina has been a leader in addressing national and state concerns over misuse of conservation easements. In 2004, with the cooperation of local land trusts, the S.C. Department of Revenue conducted an extensive audit of conservation agreements across the state. They found a small number of violations, typically driven by over-inflated valuations and lack of conservation benefit to the general public. To curtail potential future abuses, the General Assembly, in August of 2005, adopted significant amendments affecting the deductibility of non-cash charitable contributions, including conservation easements valued at more than $100,000. Not all of the changes are new, but they may create situations where a donor qualifies for a federal deduction but not a state deduction and credit. A summary of the changes involving conservation easements follows:

1. Quid Pro Quo Rules Scrutinized
“ I’ll give you this in exchange for that.” New Code Section 12-6-5590 mandates that a donor taking a state income tax charitable deduction have “donative intent”.
The concept of donative intent requires “the donor to be motivated by detached and disinterested generosity benefiting a charitable purpose rather than expected economic benefit.” In other words, a donor generally may not claim a charitable deduction when a conservation easement is implemented to (1) comply with state or federal regulatory requirements; (2) to obtain public services such as roads, water or sewer; or (3) to obtain subdivision, building, zoning, environmental, mitigation or similar permit or approval.

The S.C. Department of Revenue will examine the substance, rather than merely the form, of the contribution, including any related and surrounding transactions. “The DOR is also explicitly empowered to use the step transaction, economic reality, quid pro quo, personal benefit and other judicially developed doctrines.”

2. Golf Courses Ineligible for Deduction
New code section 12-6-5590 (E) states that no charitable deduction is allowed for the gift of a conservation easement if the real property is used for, associated with, or is planned to be used or associated with the playing of golf. Neither the state conservation credit nor a state income deduction can be taken.

3. Property Tax and Agriculture Use Classification
Prior to the 2005 changes, counties were required to tax property covered by a conservation easement as agricultural property, even if it was not being used for agriculture. The new law provides that land covered by an easement must meet the agricultural use classification requirements to qualify for the lower rates.

4. Valuation Penalty
The S.C. General Assembly adopted Internal Revenue Code § 6701, which imposes penalties for persons who knowingly aid and abet an understatement of tax liability by a third party. “The penalty can be imposed upon any person who aids or assists in, procures, or advises with respect to, the preparation or presentation of any portion of a return, affidavit, claim, or other document while knowing or having reason to know that such portion will be used in connection with any material matter arising under the internal revenue laws and who knows that a taxpayer will use the related information to understate a tax liability.”

The OSPC is grateful to the Palmetto Conservation Foundation for its assistance in providing information on changes in S.C. regulations. The Foundation is not responsible for the interpretations offered here.

Click Here to download a PDF file with detailed information on the SC credit program.

The Open Space Protection Collaborative provides information to promote the proper use of easements and other conservation tools. This information is not intended to be tax or legal advice; individuals should consult their own legal and financial advisers before drafting, executing or donating a conservation easement.