Michigan Farmland and Forest Preservation Programs Offer Tax Benefits
The State of Michigan has developed several programs that aim to protect and control the use of farmland and forest property. They seek to safeguard open area lands from being turned into commercial or industrial property. This article will outline three programs: The Farmland and Open Space Preservation Program (formerly PA-116), the Conservation Easement Donation Program, and the Qualified Forest Program.
Farmland and Open Space Preservation Program
The Farmland and Open Space Preservation Program is designed to preserve farmland and open areas from becoming developed into space for commercial or industrial use. To enter into an agreement, the landowner must agree to keep the selected parcel(s) as agricultural land for a minimum of ten years. After the initial agreement expires, the landowner can extend the agreement for a minimum of seven years for as long as the agreement is intended, for agricultural use. Land must be at least 51% devoted to agricultural use to qualify for the credit, and the State of Michigan just passed a bill in March that allows landowners to carve out sections of a parcel that are not used for agricultural purposes (i.e., a house on a parcel that includes farmland). The largest benefit for a landowner is the credit they are eligible for on their Michigan income tax return. All property taxes (less special assessments) paid over 3.5% of household income are deemed a dollar-for-dollar reduction of tax owed, with all excess refunded to the taxpayer.
Conservation Easement Program
The Conservation Easement Program is a tool used by the State of Michigan and a private landowner to prohibit the development of farmland. These agreements are enforced to protect the agricultural value of the property. A conservation easement donation is an approach to keep land permanently protected, while the landowner still controls the parcel. The largest benefit of this program to a landowner who enters into an agreement is the possibility that the land donation could qualify as a charitable donation that could be deducted on a federal income tax return. Property taxes could also be lowered based on the new assessed value of the land.
Qualified Forest Program
Michigan is home to more than 20 million acres of forestland, and the State has developed a program that makes it beneficial for landowners to keep their forest undeveloped. To qualify for the benefit, parcels of land between 20 and 39 acres must be more than 80% populated with forest capable of being produced into wood products, and parcels larger than 40 acres need to be at least 50% capable of producing wood product. The largest tax benefit from entering into an agreement would be the reduction of the school operating fund taxes on non-homestead property tax statements. The reduction is a maximum of 18 mills; the school operating fund accounts for the largest single item on a property tax bill.
Using these programs can prove to be advantageous for many taxpayers, and can be a very useful tax planning tool. If you believe that you may have a parcel of land that qualifies for any of the above programs, please contact Yeo & Yeo for more information or help to get the process started.