(1) In general: If the executor makes the election described in paragraph (6), then, except as otherwise provided in this subsection, there shall be excluded from the gross estate the lesser of—

          (A) the applicable percentage of the value of land subject to a qualified conservation easement, reduced by the amount of any deduction under section 2055 (f) with respect to such land, or

          (B) the exclusion limitation.

     
     (2) Applicable percentage: For purposes of paragraph (1), the term “applicable percentage” means 40 percent reduced (but not below zero) by 2 percentage points for each percentage point (or fraction thereof) by which the value of the qualified conservation easement is less than 30 percent of the value of the land [1]  (determined without regard to the value of such easement and reduced by the value of any retained development right (as defined in paragraph (5)). The values taken into account under the preceding sentence shall be such values as of the date of the contribution referred to in paragraph (8)(B).
 

     (3) Exclusion limitation: For purposes of paragraph (1), the exclusion limitation is the limitation determined in accordance with the following table:

 In the case of estates of decedents dying during/ the limiation is: 1998/$100,000   1999/$200,000   2000/$300,000   2001/$400,000   2002 or thereafter/ $500,000.

    (4) Treatment of certain indebtedness

          (A) In general: The exclusion provided in paragraph (1) shall not apply to the extent that the land is debt-financed property.

          (B) Definitions: For purposes of this paragraph—

                  (i) Debt-financed property The term “debt-financed property” means any property with respect to which there is an acquisition indebtedness (as defined in clause (ii)) on the date of the decedent’s death.

                  (ii) Acquisition indebtedness The term “acquisition indebtedness” means, with respect to debt-financed property, the unpaid amount of—

                        (I) the indebtedness incurred by the donor in acquiring such property,

                        (II) the indebtedness incurred before the acquisition of such property if such indebtedness would not have been incurred but for such acquisition,

                        (III) the indebtedness incurred after the acquisition of such property if such indebtedness would not have been incurred but for such acquisition and the incurrence of such indebtedness was reasonably foreseeable at the time of such acquisition, and

                        (IV) the extension, renewal, or refinancing of an acquisition indebtedness.

     (5) Treatment of retained development right

          (A) In general: Paragraph (1) shall not apply to the value of any development right retained by the donor in the conveyance of a qualified conservation easement.

          (B) Termination of retained development right: If every person in being who has an interest (whether or not in possession) in the land executes an agreement to extinguish permanently some or all of any development rights (as defined in subparagraph (D)) retained by the donor on or before the date for filing the return of the tax imposed by section 2001, then any tax imposed by section 2001 shall be reduced accordingly. Such agreement shall be filed with the return of the tax imposed by section 2001. The agreement shall be in such form as the Secretary shall prescribe.

          (C) Additional tax: Any failure to implement the agreement described in subparagraph (B) not later than the earlier of—

                (i) the date which is 2 years after the date of the decedent’s death, or

                (ii) the date of the sale of such land subject to the qualified conservation easement,

shall result in the imposition of an additional tax in the amount of the tax which would have been due on the retained development rights subject to such agreement. Such additional tax shall be due and payable on the last day of the 6th month following such date.

          (D) Development right defined: For purposes of this paragraph, the term “development right” means any right to use the land subject to the qualified conservation easement in which such right is retained for any commercial purpose which is not subordinate to and directly supportive of the use of such land as a farm for farming purposes (within the meaning of section 2032A (e)(5)).

     (6) Election: The election under this subsection shall be made on or before the due date (including extensions) for filing the return of tax imposed by section 2001 and shall be made on such return. Such an election, once made, shall be irrevocable.

     (7) Calculation of estate tax due: An executor making the election described in paragraph (6) shall, for purposes of calculating the amount of tax imposed by section 2001, include the value of any development right (as defined in paragraph (5)) retained by the donor in the conveyance of such qualified conservation easement. The computation of tax on any retained development right prescribed in this paragraph shall be done in such manner and on such forms as the Secretary shall prescribe.

     (8) Definitions: For purposes of this subsection—

          (A) Land subject to a qualified conservation easement means land—

               (i) which is located in the United States or any possession of the United States,

               (ii) which was owned by the decedent or a member of the decedent’s family at all times during the 3-year period ending on the date of the decedent’s death, and

               (iii) with respect to which a qualified conservation easement has been made by an individual described in subparagraph (C), as of the date of the election described in paragraph (6).

          (B) Qualified conservation easement means a qualified conservation contribution (as defined in section 170(h)(1)) of a qualified real property interest (as defined in section 170 (h)(2)(C)), except that clause (iv) of section 170 (h)(4)(A) shall not apply, and the restriction on the use of such interest described in section 170 (h)(2)(C) shall include a prohibition on more than a de minimis use for a commercial recreational activity.

          (C) An individual is described in this subparagraph if such individual is—

                (i) the decedent,

                (ii) a member of the decedent’s family,

                (iii) the executor of the decedent’s estate, or

                (iv) the trustee of a trust the corpus of which includes the land to be subject to the qualified conservation easement.

          (D) The term “member of the decedent’s family” means any member of the family (as defined in section 2032A(e)(2)) of the decedent.

     (9) Treatment of easements granted after death: In any case in which the qualified conservation easement is granted after the date of the decedent’s death and on or before the due date (including extensions) for filing the return of tax imposed by section 2001, the deduction under section 2055 (f) with respect to such easement shall be allowed to the estate but only if no charitable deduction is allowed under chapter 1 to any person with respect to the grant of such easement.

     (10) Application of this section to interests in partnerships, corporations, and trusts: This section shall apply to an interest in a partnership, corporation, or trust if at least 30 percent of the entity is owned (directly or indirectly) by the decedent, as determined under the rules described in section 2057 (e)(3).