1What is a conservation easement?
A conservation easement is a legal agreement between a property owner, the donor and a qualified conservation organization or agency, or the holder, in which the owner voluntarily agrees to restrict the type and amount of development that may take place on his or her property. A conservation easement is a way to preserve property that has a conservation or historic value while keeping the property in its natural and undeveloped state and still maintaining ownership of the property. The owner also keeps the right to use property for economic gain or recreation and the right to sell or deed the property to another. A donation of a conservation easement also may reduce estate, income and property taxes.
2How long does a conservation easement last?
An easement may be granted for a term of years or in perpetuity. However, for a landowner to take full advantage of the possible benefits of a donated easement, it must be given in perpetuity.
3What is contained in the easement document?
The conservation easement document contains a series of restrictions relating to use of the land. The owner transfers, by deed of conservation easement to OLT, certain rights which will protect the property in the future. The owner initially gives up all development and rights to the property, but then reserves the rights they specifically desire in agreement with the land trust's requirements. The purpose of the document under the law is to preserve the land in an undeveloped state. But the land can also be used for other purposes to benefit the owner, for example as a farm. The owner then reserves the right to undertake agriculture or other necessary activities on the land as agreed upon with the land trust. The document is recorded on the land records of the town or county where the property is located. This way, the easement is attached to the land by the records and "runs with the land." In other words, all subsequent owners of the property, or anyone who obtains an interest in the property, purchases it subject to the terms of the easement.
4Who can hold a conservation easement?
In order to take advantage of the tax benefits of the donation, the owner must grant the easement to a public agency or a conservation organization that qualifies as a public charity under Internal Revenue Code Section 501 (c)(3).
5What is the responsibility of the owner in the easement process?
Each state has its own laws that will determine the legal consequences of a conservation easement. Each prospective donor should consult his or her attorney and tax professional as to the laws of their state and the legal and tax implications of the proposed easement.
The landowner is responsible for obtaining an appraisal of the property. The appraiser will furnish both a market value of the property and a value of the property after a conservation easement has been placed thereon. This difference in valuation may determine the amount of tax deduction allowed. According to IRS rules, if a gift is valued at $5,000 or more, an appraisal must be completed by a qualified appraiser to document the donation. A qualified appraiser is one who is knowledgeable in making appraisals of the type of property donated, who is not the donor or holder. (See Internal Revenue Code, 26 USC Section 170 Et. Seq., and Treasury Regulations 1-170 Et. Seq. for legal requirements.)
A Baseline Documentation Report (BDR) is necessary for all easement donations. The BDR is an inventory of the conservation values of the property, which includes habitat and wetland analysis, as well as suggested management ideas to ensure its protection and highest use to waterfowl and wildlife. It is essentially a snapshot of the property at the time of donation. The IRS requires a donor to "make available to the holder prior to the time the donation is made, documentation sufficient to establish the condition of the property at the time of the gift." (See Treasury Regulations Section 1-170A-14.) A BDR fulfills the IRS documentation requirement, and provides the holder with critical information about the property that is used for monitoring and enforcement. The cost of this report may run several thousand dollars. OLT can help the donor to arrange for the preparation of these documents.
Additionally, the landowner will need to obtain a title search or a title opinion from a title examiner or attorney in the area. Title information is necessary to disclose the encumbrances recorded on the land records that might be in conflict with the conservation easement. The cost may be minimal, depending on how long the donor has held title to the property and the number of encumbrances recorded on the land records.
6What are the steps in the easement process?
A landowner who wishes to donate a conservation easement to OLT should
contact the OLT's office (or below). A site visit will be conducted by a biologist or wildlife expert to determine if the property contains valuable habitat and if it complements OLT's mission. The biologist will prepare a short document for use by OLT called a Preliminary Property Inspection (PPI) report. The terms in the easement document will then be negotiated between the owner and OLT. In the meantime, the owner will arrange for the appraisal, title work and BDR. The process is one of mutual cooperation as both donor and holder are working toward the preservation of valuable habitat. When both parties are satisfied with the terms and the conditions of the conservation easement, it is signed and recorded with the recording clerk of the local county or town.
7What is the endowment fund?
OLT has the welcomed duty of monitoring and enforcing the easement forever. Of course, this requires funding. OLT has established an endowment fund that is set aside for the permanent work of monitoring and enforcing easements. OLT will request that each donor make a tax-deductible donation to the endowment fund. This donation is based upon the assessment of the donated easement toward the overall mission of OLT. A donation to the fund ensures that the owner's wishes will be carried out in perpetuity.
8What are the income tax benefits?
To qualify for a tax deduction, one requirement is that a conservation easement donation must be a charitable gift as defined by the IRS. The donation must be made to a qualified charitable organization like OLT and, if worth more than $5,000, documented by a qualified appraisal. The maximum charitable deduction is set by federal tax law at a percentage of your annual adjusted gross income (AGI). In some states, there is also a deduction or credit against state income taxes for the donation of an easement. In 2015, Congress made permanent the enhanced federal tax incentive for conservation easement donations. Generally, the donor of appreciated real estate (most conservation easement property is long-term capital gain property) may be allowed to deduct up to 50 percent of adjusted gross income in one year. The excess value of the gift may be carried forward for 15 additional tax years. Qualifying farmers and ranchers may deduct up to 100 percent of their income, provided the land remains available for agriculture. These benefits were signed into law on December 18, 2015, and the terms apply to donations made at any time in 2015 and to all donations made after that. If the property is ordinary income property, the amount of the deduction is only the adjusted basis of the property. Corporate property also is treated differently, and other rates apply. In some states, the donor also may be entitled to a deduction toward state income taxes. In all cases, the donation should be reviewed with a tax professional or attorney to determine the deductions allowed.
9What are the property tax benefits?
An easement donor may be entitled to a reduction in property taxes. Property taxes are based on the assessed value of the property, which is usually for its highest and best use. A reduction in the fair market value by easement restrictions should mean a corresponding reduction on property tax. Land restricted by a conservation easement also may be eligible for other tax relief through state or local programs that help forestland and farmland owners.
