In the United States, a conservation easement is an encumbrance — sometimes including a transfer of usage rights (easement) — which creates a legally enforceable land preservation agreement between a landowner and a government agency (municipality, county, state, federal) or a qualified land protection organization (often called a "land trust"), for the purposes of conservation. It restricts real estate development, commercial and industrial uses, and certain other activities on a property to a mutually agreed upon level. The property remains the private property of the landowner.

The decision to place a conservation easement on a property is strictly a voluntary one where the easement is sold or donated. The restrictions of the easement, once set in place, "run with the land" and are binding on all future owners of the property (in other words, the restrictions are perpetual). The restrictions are spelled out in a legal document that is recorded in the local land records and the easement becomes a part of the chain of title for the property. Appraisals of the value of the easement, and financial arrangements between the parties (land owner and land trust), generally are kept private.

The primary purpose of a conservation easement is to protect land from certain forms of development or use. Lands for which conservation easements may be desirable include agricultural land, timber resources, and/or other valuable natural resources such as wildlife habitat, clean water, clean air, or scenic open space. Protection is achieved primarily by separating the right to subdivide and build on the land from the other rights of ownership. The landowner who gives up these "development rights" continues to privately own and manage the land and may receive significant state and federal tax advantages for having donated and/or sold the conservation easement. Perhaps more importantly, the landowner has contributed to the public good by preserving the conservation values associated with their land for future generations. In accepting the conservation easement, the easement holder has a responsibility to monitor future uses of the land to ensure compliance with the terms of the easement and to enforce the terms if a violation occurs.

Although a conservation easement prohibits certain uses by the landowner, such an easement does not make the land public. On the contrary, many conservation easements confer no use of the land either to the easement holder or to the public. Furthermore, many conservation easements reserve to the landowner specific uses which if not reserved would be prohibited. Some conservation easements confer specific uses to the easement holder or to the public. These details are spelled out in the legal document that creates the conservation easement.¹

Income Tax Deductions

Landowners who donate a "qualifying" conservation easement to a "qualified" land protection organization under the regulations set forth in 170(h) of the Internal Revenue Code may be eligible for a federal income tax deduction equal to the value of their donation. The value of the easement donation, as determined by a qualified appraiser, equals the difference between the fair market value of the property before and after the easement takes effect.

To qualify for this income tax deduction, the easement must be: a) perpetual; b) held by a qualified governmental or non-profit organization; and, c) serve a valid "conservation purpose," meaning the property must have an appreciable natural, scenic, historic, scientific, recreational, or open space value. As a result of new legislation signed by President George W. Bush on August 17, 2006 (H.R. 4 - The Pensions Protection Act of 2006), in 2006 and 2007, conservation easement donors may deduct the value of their gift at the rate of 50% of their adjusted gross income (AGI) per year. Further, landowners with 50% or more of their income from agriculture may be able to deduct the donation at a rate of 100% of their AGI. Any amount of the donation remaining after the first year can be carried forward for fifteen additional years (allowing a maximum of sixteen years within which the deduction may be utilized), or until the amount of the deduction has been used up, whichever comes first. With the passage of the Farm Bill in the summer of 2008 these expanded federal income tax incentives were extended such that they also apply to all conservation easements donated in 2008 and 2009.

Income Tax Credits

A few states offer income tax credits for conservation easements, and in New Mexico, Colorado, North Carolina, and Virginia these credits are transferable. A landowner (eg, a rancher or farmer) who donates all or a portion of a conservation easement valued in excess of the landowner's income can transfer (sell) any unused portion of the tax credit to another taxpayer. This helps a "land rich, cash poor" landowner to realize the development value of the land without developing the land.

The New Mexico tax credit, effective January 1, 2008, applies retroactively to conservation easements effected from January 1, 2004.²

Estate Tax Reductions and Exclusions

For landowners who will leave sizable estates upon their death, the most important financial impact of a conservation easement may be a significant reduction in estate taxes. Estate taxes often make it difficult for heirs to keep land intact and in the family because of high estate tax rates and high development value of land. It may be necessary to subdivide or sell land for development in order to pay these taxes which may not be the desire of the landowner or their heirs. A conservation easement can often provide significant help with this problem in three important ways:

1. Reduction in Value of Estate. The deceased's estate will be reduced by the value of the donated conservation easement. As a result, taxes will be lower because heirs will not be required to pay taxes on the extinguished development rights. In other words, heirs will only have to pay estate taxes on preserved farmland values, and not full development values.
2. Estate Exclusion. Section 2031(c) of the tax code provides further estate tax incentives for properties subject to a donated conservation easement. When property has a qualified conservation easement placed upon it, up to an additional 40% of the value of land (subject to a $500,000 cap) may be excluded from the estate when the landowner dies. This exclusion is in addition to the reduction in land value attributable to the easement itself as described above. In October 2007, HR 3708 was introduced in Congress which if passed would raise the cap on this estate tax exclusion to $5,000,000.
3. After Death Easement. Heirs may also receive these benefits (but not the income tax deduction) by electing to donate a conservation easement after the landowner's death and prior to filing the estate return (called a "post mortem" election).

State and Property Tax Incentives

Some states (Colorado, Virginia, Maryland, and North Carolina) offer a state income tax incentive and many states offer property tax incentives to conservation easement donors.

Issues to Consider

• As is the case with any property interest, a conservation easements may be taken by eminent domain (and thereby extinguished) when the public value of the proposed project exceeds that of the conservation interest being protected by the easement.
• Conservation easements may result in a significant reduction in the sale price of the land because a builder can no longer develop it. In fact, this difference in value is the basis for the granting of the original tax incentives.

Purchase of Agricultural Conservation Easement programs

In 1974, Suffolk County in New York enacted the first PACE (also known as purchase of development rights or PDR) program. King County in Washington and the states of Maryland, Massachusetts, and Connecticut quickly followed suit. As of 2003, the PACE program operates in 23 states, including 19 statewide and more than 45 local programs.[1]

See also

• Land use
• Easement refuge
• Freedom to roam
• Prime farmland
• William Ginsberg, attorney who litigated pioneering case regarding tax deductibility of conservation easements

External links

• How a conservation easement works: Private Landowner Network.
• "Conservation Easements": The Nature Conservancy.
• The Conservation Easement Handbook: The Trust for Public Land and the Land Trust Alliance
• Resources for Landowners: American Land Conservancy
• "Understanding PACE": American Farmland Trust
• Farmland Information Center
• Land Protection Methods For Land Trusts and Landowners: Woodland Stewards

References