Example 1: Estate Tax Savings

• Value of land before easement $1,000,000
• Value of land after easement (remainder value) $700,000
• Value of easement $300,000

Calculation of Exclusion

• Remainder value $700,000
• Exclusion percentage 40%
• Amount of exclusion (remainder times exclusion %) $280,000

Calculation of Tax Savings

• Value of exclusion $280,000
• Savings due to exclusion ($200,000 taxed at 49%) $137,200

• Value of easement $300,000
• Assumed estate tax rate 49%
• Savings due to reduction in value
• ($300,000 taxed at 49%) $ 147,000

Total Estate Tax Savings due to Easement $284,200
Tax Savings as Percent of Donation* 94.7%

*In other words, the tax saving achieved was 94.7% of the value given up through the donation.

Example 2: Combined Income and Estate Tax Savings for Easement Donation

• Value of easement $ 300,000
• Value of exclusion under American Farm and Ranch Act $ 280,000

• Estate tax bracket 49%
• Federal income tax bracket 31%
• State income tax bracket 6.75%

• Value of estate tax savings $ 284,200
• Value of federal income tax savings $ 80,910
• Value of state income tax savings $ 80,000
• Total Combined Income and Estate Tax Savings $ 445,110
• Tax Savings as Percent of Donation* 148.3%

*In other words, the tax saving achieved was 148.3% of the value given up through the donation.

Example 3: Combined Estate and Income Tax Savings for Top Bracket Donors (actual example)

• Value of land before easement $ 3,571,400
• Value of land after easement (remainder value) $ 2,499,980
• Value of easement $ 1,071,420

• Assumed federal income tax bracket 39.6%
• Assumed state and county income tax bracket 6.75%
• Assumed income level 595,000

Federal Income Tax Deduction

• Value of easement $ 1,071,420
• Annual limit on deduction 30%
• Maximum annual deduction $ 178,500
• Number of years deduction allowed 6
• Total of allowed deduction over 6 years $ 1,071,000
• Total Federal Income Tax Savings (deduction times tax rate) $ 424,116

State Tax Credit

• Max. total allowable credit (100% of easement value) $ 1,071,420
• Annual credit limit $ 5,000
• State income tax due without easement $ 39,960
• State income tax due with easement $ 34,960
• Number of years credit allowed 6
• Total State Income Tax Savings with Credit $ 80,000

• Total Federal & State Income Tax Savings $ 504,116

Estate tax calculations

• Reduction of estate value from easement $ 1,071,420
• Exclusion (40% of remainder value, using a typical estate plan to maximize exclusion in both husband's and wife's estates) $ 999,992
• Total estate reduction $ 2,071,412
• Estate tax rate 55%
• Estate Tax Savings (total estate reduction times estate tax rate) $ 1,139,277

• Total combined income & estate tax savings $ 1,643,393

• Tax savings as Percent of donation* 153%

Note: This example assumes that estate transfers in 2002 or later in order to take full advantage of the American Farm and Ranch Act Exclusion.

*In other words, the tax saving achieved was 153% of the value given up through the donation.

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