Conservation Easements Offer Tax Incentives For Land Owners
In the United States, a Conservation Easement (also called conservation covenant, conservation restriction or conservation servitude) is a power invested(link) in a qualified private land conservation organization (often called a “land trust“) or government (municipal, county, state or federal) to constrain, as to a specified land area, the exercise of rights otherwise held by a landowner so as to achieve certain conservation purposes. It is an interest in real property established by agreement between a landowner and land trust or unit of government. The conservation easement “runs with the land,” meaning it is applicable to both present and future owners of the land. As with other real property interests, the grant of conservation easement is recorded in the local land records; the grant becomes a part of the chain of title for the property.
The conservation easements purposes will vary depending on the character of the particular property, the goals of the land trust or government unit, and the needs of the landowners. For example, an easement’s purposes (often called “conservation objectives”) might include any one or more of the following:
• Maintain and improve water quality;
• Perpetuate and foster the growth of healthy forest;
• Maintain and improve wildlife habitat and migration corridors;
• Protect scenic vistas visible from roads and other public areas; or
• Ensure that lands are managed so that they are always available for sustainable agriculture and forestry.
The most distinguishing feature of the conservation easement as a conservation tool is that it enables users to achieve specific conservation objectives on the land while keeping the land in the ownership and control of landowners for uses consistent with the conservation objectives.
1. The decision to place a conservation easement on a property is strictly voluntary.
2. The restrictions of the easement are perpetual.
3. Appraisals of the value of the easement are generally are kept private.
4. The landowner continues to privately own and manage the land.
5. The Landowner may receive significant state and federal tax advantages.
6. The landowner has contributed to the public good by preserving the conservation values associated with their land for future generations.
7. The Landowner 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.
8. The Conservation Easement prohibits certain uses by the landowner.
9. The agreement does not make the land public.
10. The legal document will spell out various agreed upon use restrictions.
Income Tax Deductions Are The Enticement Of A Conservation Easement
Landowners who donate a “qualifying” conservation easement may be eligible for a federal income tax deduction equal to the value of their donation under the regulations set forth in 170(h) of the Internal Revenue Code. To qualify, the easement must be:
• Held by a qualified governmental or non-profit organization
• Serve a valid “conservation purpose”
The Pensions Protection Act of 2006, in 2006 and 2007, spells out the rates and guidelines for these tax deductions but has since changed with the passage of the Farm Bill in the summer of 2008 and federal income tax incentives were extended such that they also apply to all conservation easements donated in 2008 and 2009 and then this provision was extended again to apply to donations in 2010 and 2011. The provision has since expired and currently for 2012, conservation easement donations may only be deducted at the rate of 30% of the donor’s AGI and after the first year the donor has a five-year carry forward.
Are Tax Credits Offered
Land conservation advocates have long tried to enact additional tax incentives for landowners to donate easements. There has been discussion of creating a federal income tax credit for easement donors since around 1980. However, no federal tax credit has been enacted. States, however, have moved ahead to grant credits that can be used to pay state income tax to donors of qualified conservation easements. Check with your local Tax Authority to verify applicability.
A tax credit, however, is a hollow reward as the value of real property by donating a conservation easement may be reduced below the actual value. To respond to this, Colorado conservationists made their state tax credit transferable in 2000—that is, the donor/landowner can sell her/his credit to other parties; the buyers then use the purchased tax credit to pay their Colorado income tax. This is appealing to buyers because the credit is sold at a discount from face value. Other states have followed since. However, “caps” on the amount of credit an easement can generate, and other restrictions, limit the scope of the different state tax credit programs in varying manners ~in region~.
Estate Tax Reductions, Exclusions And Warnings
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:
• 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.
• 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.
• 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).
As is the case with any property interest, a conservation easement 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.
Conservation Easements are a ‘Sustainable Development’ Land Grabs
A Conservation Easement contract has some concerns you should be aware of prior to signing an agreement. With the federal government, your signature will, in essence, split the estate on your property. You are releasing to a land trust, the controlled “use” of the land and development rights, while you retain title to the “land” and remain responsible for all costs of ownership … FOREVER. It will be virtually impossible for you, your heirs or a purchaser, regardless of circumstance, to over-ride this contract agreement.
The Transfer Of Land Ownership In The United States
Our country is now experiencing a third major historical shift of land ownership, its uses, resources, and wealth. Only two other events in history were of equal significance: the railroad land acquisition of the nation’s early days and the Homestead Act. The current episode could constitute a complete change in our form of government which, through the Constitution, is founded upon private property rights of citizens and is designed to protect our freedoms and way of life. The current appeal is innocuous, the tactics subtle verging on fraudulent, and the results inevitable, unless property owners awaken and resist the poison bait. Hopefully our government and legal system, in the interests of our citizens can, in sufficient time, develop protective measures to control and overcome this threatening land grab scheme. Meanwhile, we must depend upon caution, restraint and common sense of informed property owners.
The Conservation Easement provides the tools, techniques, and motivations to legally wrestle the land from its owners and transfer it to the federal government supposedly preserving it for future generations. Psychological and economic tactics being used are subtle with long-term objectives seldom identified by property owners. They are led to believe they are helping popular environmental efforts, while at the same time being provided personal financial benefits and security. Some are even awarded public recognition through the media for their noble, unselfish “contribution.” Unknowingly they have essentially become victims of legalized fraud. They have enabled NGOs such as The Nature Conservancy to become wealthy in the billions while the land they have committed in perpetuity is doomed to Federal ownership.
Differences of opinion with the land trust concerning interpretation of contract terms may eventually lead you to seek court settlement. Unfortunately, you, the owner of the land, are committed to bearing all court costs if you lose, which in all likelihood you will. Furthermore, they can take you to court if they decide you are not adequately meeting contract obligations. You will bear all legal costs including their high priced attorneys. And if your current friendly land trust shows too much leniency, another more demanding third party agency can step in, take over and rule with a firmer hand possibly in the interests of “the environment.”
For various reasons including financial difficulty or family disagreements, you or your heirs may attempt to sell all or part of the property. The contract prevents dividing or selling off portions. Prospective buyers are limited for easement-encumbered land; the larger the acreage the more limited. Basically, it is hard to get rid of.
By law, the conservation easement can only be extinguished when the entity holding the easement (the land trust) becomes the full owner of the property, both the land and its controlled use. The friendly land trust will probably be happy to purchase your land at the greatly reduced value. However, once purchased and with the easement restriction removed this non-profit, non-taxpaying land trust it is legally free to resell at high market value of adjoining property. Or they can develop subdivisions; perform timber harvest, lumber mills, mining, oil drilling, and whatever … at a profit.
All of this, of course, is in direct conflict with your original noble intent when you donated the conservation easement. Sadly the idealistic, worthy causes you had envisioned through the land trust, such as environmental protection, habitat for wildlife, open space, rural living, protection against urban sprawl, will no longer exist except as they may be initiated and enforced by environmental agencies at your expense.
Large property owners such as ranchers and timber land owners are being enticed to place property under conservation easement often receiving in return thousands of dollars in tax benefits in return for the reduced land value. Then the property under easement is purchased by the (non-profit, non-taxpaying) land trust at the reduced value; and can immediately resell to the federal government at considerable profit. The land trust acting as the real estate agent puts together the financial package. The American taxpayer unknowingly picks up the tab for the entire operation at both ends by financing both the tax write-off and the governmental land purchase. Meanwhile, the tax base of the county is reduced. In essence, our citizens are financing the buy-out of what is left of our nation’s private property all in the name of “sustainability” and proclaimed protection of our “open space” and “wilderness” dedicated to wildlife. If this practice continues with ongoing loss of our country’s private property throughout the West and Middle-west we are destined to evolve into a totalitarian form of government.