What is a conservation easement?
Essentially, a conservation easement sets apart the right to engage in certain types of land use - such as intensive development - from other ownership rights over a specific parcel of land. Activities covered by the easement may be exercised only by the holder of the easement. However, the property owner continues to own title to the land and can use it for limited purposes that do not interfere with the easement.
What restrictions can a conservation easement include?
A conservation easement can include almost any kind of restriction agreed to by the landowner and easement holder. Each conservation easement should be specific to the protection needs of the particular piece of land.
How is a conservation easement created?
A Conservation easement is created when the landowner transfers some or all rights to develop the property to a government agency or qualified conservation non-governmental organization (NGO). The government agency or conservation organization, as the owner of the easement, has the legal right to block incompatible uses of the land. As with other property rights a conservation easement may be either donated or sold.
How long does a conservation easement last?
Conservation easements are perpetual in order to permanently preserve the land and allow the landowner the maximum tax benefits.
What are the federal tax benefits associated with a conservation easement?
The federal income tax benefits of donating a conservation easement are similar to those of making other tax-deductible gifts of real property but are subject to some unique requirements. To meet the additional criteria for the tax deduction, an easement must be donated to a qualified organization for a qualified conservation purpose, such as:
- The preservation of land areas for outdoor recreation by, or the education of, the general public,
- The protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem,
- The preservation of open space (including farmland
and forest land) where such preservation is -
- For the scenic enjoyment of the general public, or
- Pursuant to a clearly delineated Federal, State, or local governmental conservation policy, and will yield a significant public benefit, or
- The preservation of an historically important land area or a certified historic structure.
A person "donating" a qualified conservation interest may deduct the appraised value of the easement from their adjusted gross income, provided that the deduction does not exceed 30% of their adjusted gross income in the year of the gift. Any excess balance of the deduction may be carried over for up to five succeeding years, subject to the same annual 30% limitation. (IRC Section 170).
The appraised value of the easement is the difference between the value of the land with the easement and without the easement.
Conservation Specific Tax Provisions:
- Charitable Income Tax Deduction for Conservation Easement
a. Code section 170(h)
b. Deduction enhancements for easement gifts under new Pension bill.
- Estate Tax Exclusion for Land with Conservation Easement
a. Code section 2031(c)
Other Tax Provisions Commonly Used by Conservation Charities
- Charitable Income Tax Deductions for outright gift of land
a. Code section 170
- Bargain-Sale: Sale to Charity of conservation land at less than market
a. Code section 1011(b)
- Tax-Deferral Strategies: transactions that postpone tax payment
a. Code section 1031 (exchanging easements for fee title)
- Charitable Planned Gifts: Gifts of land in trust for charity
a. Code sections 664 et seq.
- Special Use Valuation: Reduced Estate tax for Farm/Forestland
a. Code section 2032A
Section 2031(c) allows executors to exclude from federal estate tax the value of the land encumbered by a qualified conservation easement. The law also allows beneficiaries to exclude from the taxable estate 40% of the value of the land subject to qualifying conservation easements.
Section 2031 also provides that an executor or trustee can elect to "donate" a qualified conservation easement after the death of the decedent thereby reducing the value of the land subject to the estate tax and allow the estate to be eligible for the Section 2031(c) exclusion.
What are the state tax benefits associated with a conservation easement?
A contribution of a conservation easement may qualify as a charitable contribution under state law. In addition there may be some property tax breaks as the result of a qualified conservation easement.
Who should I contact about donating a conservation easement?
There are several national, state and federal agencies that can help you with a conservation easement. The Nature Conservancy and the Land Trust Alliance are both good places to start. From there you can find information on organizations in your particular area.
How do I report the charitable deduction from a conservation easement?
You must complete Form 8283 Non-cash Charitable Contributions. The charitable deduction is then entered on Form 1040 Schedule A (Itemized Deductions) line 16. This amount plus all other itemized deductions carried over to form 1040 line 36.