PHOENIX - Clients who love to steal away to a cabin in the woods may not realize their beloved property can also lower their taxes for up to 15 years.

“This is the single greatest [tax benefit] available to clients today,” Samuel Donaldson, a professor of law at Georgia State University College of Law said at NAPFA's spring conference.

Donaldson, speaking during a program on permanent changes made to the qualified conservation contribution, notes that clients no longer need to rush to take advantage of this tax-planning tactic.

Clients can lower taxes for up to 15 years with this planning strategy, says Samuel Donaldson, a professor of law at Georgia State University College of Law  at NAPFA's spring conference.
Clients can lower taxes for up to 15 years with this planning strategy, says Samuel Donaldson, a professor of law at Georgia State University College of Law at NAPFA's spring conference.

As with any charitable donation, whatever deduction the taxpayer can’t use immediately carries forward. Originally, if there was still a deduction left over after five years, taxpayers lost the tax benefit, according to Donaldson. Now, after Congress recently changed the rules, the deduction can carry forward for up to 15 years. “Clients can end up with truly enormous deductions,” he says.

How big? The carry increased from 40% to 50% of adjusted gross income in 2006, just as with cash or securities. “Do it with a farm or a ranch and you can write off up to 100% of adjusted gross income,” Donaldson says.

He offers the following example for how it works:

“Let’s say that you have a cabin on 100 acres, and you very much want to keep those acres as woodland and in the family. Find a tax-exempt charity that has land preservation as its mission and grant it a conservation easement, which means that you can’t change the existing use without the charity’s okay," Donaldson explains. "You’re getting a tax donation for not doing something you don’t want to do anyway.”

The income tax deduction, in this case, is for foregone potential: the difference between fair market value at the property’s existing use and fair market value at the property’s most profitable use.

“It’s not unusual to see deductions in the high six and even low seven figures, and a couple of figures have involved eight-figure income-tax deductions,” Donaldson says.