CONSERVATION EASEMENTS: TAX-DEDUCTIBLE PROTECTION OF AMERICA'S NATURAL RESOURCES
A relatively old legal tool has been gaining recent popularity, helping landowners to protect valuable habitat and open space, preserve conservation values, and maybe even earn a tax break at the same time. Conservation easements currently protect more than 5 million acres of private land in the United States. A common misconception is that conservation easements prohibit activities like forestry, farming, or ranching. In fact, they are often designed to ensure that these types of operations are able to continue.
Q: What is a conservation easement? A: It is a non-possessory interest in the private real property of another. It is created by legal agreement between a landowner and a land trust or government agency. The owner usually agrees to give up development rights on his private property, usually retaining the right to sell, lease, give, or will the property to anyone he or she chooses. In some agreements, the recipient of the conservation easement (the grantee) has the dominant interest in the easement and sometimes in the rest if the property as well. In these cases, the grantee may have the right to approve or veto transfers of both the title and real property. Almost invariably, subsequent owners and lessees are legally bound by the conservation easement agreement. In return for giving up these rights, the land trust or other recipient agrees to enforce the land use restrictions of the conservation easement, and to provide stewardship for the easement.
Q: What are the benefits of conservation easements? A: Preservation of land, open space, water, wildlife habitat, and other natural resources is important to many folks who own rural property, and especially so if they have made a living from that land. Conservation easements offer a way to protect and preserve conservation values without government regulations in a way that is sensitive to the needs of nature, the land, and the landowner. If an easement benefits the public by permanently protecting valuable natural resources, as well as meeting other federal tax code requirements, it may offer a tax deduction to the property owner. The deduction is typically equal to the difference between the value of the property without the easement and the value with the easement in place. Another tax benefit is that a conservation easement typically lowers the market value of a property, so estate taxes are lower when the property passes from an owner to his or her heirs.
Q: Are there tax deduction limits for conservation easements? A: Yes. In 2006, Congress enacted legislation increasing the allowable tax deduction for donated conservation easements from 30% to 50% of yearly adjusted gross income (AGI), with farmers and ranchers who donate easements allowed to deduct up to 100% of their AGI's. The allowable period for taking deductions for voluntary easements was also increased from 5 to 15 years. However, these provisions expired on December 31, 2008. Advocates such as the Land Trust Alliance (http://www.lta.org), which represents some 1,600 U.S. conservation organizations, are urging people to contact their members of the U.S. House of Representatives and Senate by February 27, 2007 and urge support for the Senate Farm Bill and HR 1576, which would make the conservation easement tax incentives permanent.
Q: What types of properties qualify for conservation easements? A: If you own rural, undeveloped property, you may be surprised to find that your property may qualify for a tax-deductible conservation easement. Many conservation easements protect wildlife habitat and corridors linking habitat fragments, endangered wetlands and other areas important to migratory birds, bodies of water and riparian areas, and rare landscape features. However, it is not necessary for your parcel to have any of these things in order to qualify for a tax-deductible conservation easement. Many easements are implemented in order to protect open space, as is often the case with ranching or farming properties. In fact, conservation easement agreements are often quite flexible and can be created so that future development is prevented, while allowing for the installation of necessary ranching and farming structures.
Q: Can I sell a conservation easement? A: Yes, although it is more common for landowners to donate conservation easements in order to realize the tax benefits. Of course, most landowners also appreciate the opportunity to have a direct say in how the conservation values on their land are preserved for generations to come. Most conservation organizations and land trusts are non-profit, and it is more cost-effective for them to provide assistance with and information about conservation easements than to actually raise the money to purchase them. There are, however, some organizations that will purchase certain conservation easements.
For more in-depth information, see the February 14, 2008 Landterms.com Blog on conservation easements using the link below.
For information and assistance on obtaining a conservation easement in your area, see the Land Trust Alliance website at http://www.lta.org.