Conserve Your Land
- Make land affordable to more people – a strategy for a seller
- Lower the overall cost of purchase – a strategy for a land buyer
- Are a way for landowners to get value from their land even when it’s not selling
What is a Conservation Easement?
A conservation easement is a legal agreement between a landowner and a land trust that permanently limits uses of the land in order to protect its conservation values. Landowners continue to own and use their land, can sell it, or pass it on to heirs.
When a landowner donates a conservation easement to a land trust such as ACT, they give up some of the rights associated with the land and retain others. Typically they give up the right to develop the land, and continue farming it, harvesting timber, or simply enjoying it for recreation and beauty. Some easements allow limited additional building, as long as the conservation values of the land are protected. Conservation easements are written for perpetuity, so future owners are also bound by the terms. The land trust is responsible for making sure the easements’ provisions are followed.
Conservation easements offer great flexibility. An easement on property containing rare wildlife habitat might prohibit any development; for example, while an easement on a farm might allow continued farming and the addition of agricultural structures. An easement may apply to all or a portion of the property, and need not require public access.
How a Landowner Pursues a Conservation Easement
ACT works with landowners to devise conservation solutions that best suit their conservation goals and financial needs. Not all landowners seek a tax deduction. For those that do, the IRS requires a qualified appraisal. ACT maintains a list of qualified appraisers in New Hampshire.
The first step in pursuing a conservation easement is for ACT to visit with a landowner, see the land, and discuss the landowner’s goals. The landowner fills out an application detailing their purposes for the easement and information about the land. ACT staff presents the project to the Board of Directors for approval to proceed, based on our project criteria. Then we start assembling information about the land, including title, surveys, and maps, and begin drafting an easement according to the landowner’s goals and special circumstances. If the landowner is seeking a tax deduction, he or she hires a qualified appraiser.
Through an iterative process, ACT and the landowner finalize the easement. ACT creates a baseline report illustrating the condition of the land, which the landowner reviews and signs. The ACT board gives final approval. Then closing is scheduled and the easement is signed – and we celebrate!
From the first visit with the landowner to the signing of the easement may take a matter of months, but sometimes takes much longer as families decide what they want to do with their land.
We are happy to talk with landowners about their land and potential conservation options. You can call us at 603-823-7777 or e-mail us at email@example.com.
Tax Benefits of a Conservation Easement
Because there is public benefit to conserving land, the federal tax code offers incentives to landowners. The value of an easement may be taken as a tax deduction against the landowner’s federal income tax. An easement may also be used to lower the tax liability on an estate when it is passed on to heirs. The easement value is the difference between the fair market developable value of the land and the value of the land after the easement is applied.
The tax incentives for donated conservation easements have never been higher. For projects completed by the end of 2009 the deduction allowed is much higher and length of time to write it off is much longer than before. Previously, donors could deduct the value of the easement up to 30% of their adjusted gross income for a total of six years. Under the new law, they can deduct 50% of their income for up to 16 years.
Here’s an illustration of how this new tax incentive can make a big difference for a landowner. Consider a person with an annual income of $50,000 who owns 100 acres of land. He or she puts a conservation easement on the land, agreeing not to develop it. The development rights donated in the easement are appraised at $500,000. The new law allows the landowner to deduct 50 percent of his or her income – $25,000 – for up to 16 years – a total income tax deduction of $400,000. Under the old tax law, the landowner could deduct only 30 percent of his or her income for six years – a total of $90,000.
If the hypothetical landowner has an annual income of $100,000, under the new tax law he or she can write off half – $50,000 a year – up to the $500,000 value of the easement. Under the old rules, the same landowner could write off only $180,000.
The new tax rules are even more advantageous for farmers. Those who earn at least half their income from farming may deduct 100 percent of their income up to the value of the easement. A farm family earning $100,000 a year and conserving land with development rights worth $500,000 could avoid federal income tax altogether for five years.
Donating land for conservation purposes is one of the finest legacies a person can leave to future generations. Landowners may use this option to establish a family or memorial forest, own a property they no longer use, own highly appreciated property or have substantial real estate holdings, wish to reduce estate tax burdens, or would like to be relieved of the burden of managing and carrying the tax or other liabilities of the land. A land donation is tax deductible, may reduce estate taxes, and avoids capital gains taxes that would have resulted from selling the land.
Other land donation strategies involve donating land by will, or donating a remainder interest with a reserved life estate. With these options the owner continues owning, living on, and using the land, and the land is donated after their passing. The remainder interest donation qualifies for the enhanced tax incentives described above. Other donation options include establishing a charitable gift annuity or a remainder unitrust. With these options the landowner continues living on and using the land, and receives income from the land trust, which eventually takes ownership of the land.
Some properties have such high public conservation importance that funds may be raised to purchase the land outright or purchase the development rights and create a conservation easement. Typically the landowner offers the land or the development rights for less than market value. This way the owner gets cash, avoids some capital gains tax, and may take a tax deduction based on the difference between the land’s fair market value and its sale price. The Whipple Field in Sugar Hill is an example of a bargain sale to ACT. The Sunset Hill Golf Course is an example of ACT’s raising funds to purchase development rights.