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Understanding Conservation Easements: Rights, Benefits, and Tax Implications

Conservation easements are voluntary agreements that allow property owners to limit land usage while retaining ownership. They are executed through a deed, detailing the parties involved, restrictions, and granted rights. These agreements can offer various benefits, including state conservation tax credits and federal tax deductions for charitable contributions based on the property's reduced value post-easement. While many view them positively, some may feel pressured to enter such agreements under certain conditions. Understanding the parameters can enhance land conservation efforts.

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Understanding Conservation Easements: Rights, Benefits, and Tax Implications

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  1. Conservation Easements

  2. The Basics • An easement allows the exercise of rights on another’s property • Property illustrated as a bundle of sticks • Executed as a deed • The deed describes the parameters • Parties • Restrictions • Gained rights

  3. The Basics • Most conservation easements are voluntary • But… in certain circumstances it depends on who you ask • May be gladly entered into • Donations • Tax benefits • Some may feel coerced • Thrown in as an incentive for a permit approval

  4. The Basics • The Parties • Grantor • Property owner • Grants easement to another party • Gives up certain property • Grantee • A qualified conservation organization • A Public Agency • Gains rights to enforce and monitor easement

  5. The Purpose & Benefits • Preserves status of land • In most cases, leaves land in private ownership (and continued partial use) • Can be as flexible as need be • Whole or part of parcel / lot • Restrictions can be negotiated among parties • Can be sold or donated

  6. The Benefits (to the owner) • State Conservation Tax Credits • A response to perceived federal ineffectiveness • Not all states allow such credits • Provides greater flexibility to owners regarding tax benefits (relative to federal benefits)

  7. The Benefits (to the owner) • SCTCs based on three • Calculation of tax credit value • Caps on maximum values • Number of years one may rollover the credit

  8. The Benefits (to the owner) • Calculation of credit value • Based on the decrease in market value • In NC: 25% of fair market value of donated property interest • Based on negotiation costs • Property tax value • Local tax written off of state tax liability

  9. The Benefits (to the owner) • Caps on maximum value • No limit (South Carolina) • High Limits • North Carolina ($500,000 for individuals and corporations) • Colorado ($375,000) • Low Limits • Maryland ($80,000)

  10. The Benefits (to the owner) • Carry-forward periods • Allows beneficiary of credit to use credit over a period of years • 5 years is most typical • $50,000 benefit -- $10,000 annual tax liability • Can get rid of state tax liability over a five year period

  11. Some Federal Tax Benefits • Income Tax Charitable Contribution Deductions • Based on the reduction in the land’s value after easement • Up to 50% of adjusted gross income • Up to 100% for farmers & ranchers • 16 year carry-forward period

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