Fee Simple Gifts
In order to qualify for conservation tax credit, the conservation values of the property must also be protected in perpetuity. Adequate protection of land requires ownership or oversight by an organization or entity whose mission is to protect the significant conservation values, and provision for such oversight in perpetuity. The public benefit of a transaction can be lost if the conditions of the agreement are not maintained into the future. For both fee simple and conservation easement donations, the recipient must have the ability to monitor and defend the conservation lands, and must be committed to retaining the public benefit of the land. This type of review may be out of the purview of the resource agency reviewers, such as the Natural Heritage Program, so it will likely be incumbent on the Department of Revenue and Department of Environment and Natural Resources to ensure, to the extent possible under the General Statutes, that recipients are qualified and have sufficient resources to monitor, manage and/or defend conservation lands.
2010 Changes to the N.C. Conservation Tax Credit
In July 2010, North Carolina clarified the requirements for donations of real property to qualify for a conservation tax credit under N.C.G.S. §§ 105 130.34, 105 151.12. (HB 1829) This legislation became effective on August 2, 2010. For donations made after this date to qualify for the tax credit, the interest in real property must be donated in perpetuity for one of the qualifying uses listed in this subsection and accepted in perpetuity for the qualifying use for which the property is donated.
Two possible options for complying with the clarified rules follow.
OPTION 1: Notice of Acceptance
A fee simple donation of land to a private organization or local government may qualify for the N.C. Conservation Tax Credit if both of the following conditions are met:
The donor should include a copy of the recorded Notice with their conservation tax credit application to the Department of Environment and Natural Resources, as well as the board resolution. Prior to issuing a certification letter, the Department will review the board resolution and Notice.
OPTION 2: Covenant or Easement
Other options are available to donors and recipients of real property that will allow gifts to be protected in perpetuity. These options include placing restrictive covenants that preserve the public benefits of the land in perpetuity or encumbering the land with a conservation easement that preserves the public benefits of the land in perpetuity. If a donor/recipient wishes to take these options, before the donor applies for the tax credit, a third-party, also qualified to hold conservation easements, must take receipt of any subsequently created interest.
Depending on the specific circumstances of the transaction, one of these options may be more appropriate. Potential donors and recipients are encouraged to contact the Conservation Incentives program with questions. Before finalizing a conservation donation, potential donors should consult their own legal and tax advisors.