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Conservation Easements
General
Information | The New Law | Professional
Planning
General
Information
A conservation easement can
be an important tool to:
- Retain private ownership of land
- Conserve wildlife habitat, open space
and other conservation values
- Protect productive agricultural land
- Preserve valuable family land as a legacy
for future generations
- Maintain the scenic areas and the rural
character of land in the path of development
- Preserve land which is historically
important
- Reduce property taxes
- Reduce federal estate taxes
- Reduce income taxes
- Reduce capital gain taxes
- Shift greater financial value to future
generations
A conservation easement is a contract between
a property owner and a conservation organization, such as
a land trust or government agency, to restrict the amount
and type of development on the property. If more than one
person owns the property, all owners must consent to the granting
of the conservation easement. Every conservation easement
has prohibited uses and permitted uses that are uniquely tailored
to the particular property and to the interests of the individual
land owner. These conservation easements allow the owner to
protect the wildlife habitat, open space character and other
conservation values of the property without unreasonable interference
with the owner’s continuing private property rights.
The rights in the land that the landowner
surrenders are detailed in every conservation easement. Usually
the landowner gives up the right to subdivide or develop the
property for commercial or residential purposes beyond a limited
scope. Through the conservation easement, the owner conveys
the right to enforce these restrictions in perpetuity to the
qualified conservation organization. If the landowner sells
the land thereafter, the new owner takes the land subject
to the terms of the conservation easement. If the property
is mortgaged, the lender must agree to subordinate its security
interest to the interest of the conservation organization
so that the conservation easement would survive any foreclosure.
If the requirements are met for donating
the conservation easement under the Internal Revenue Code,
then the donation may qualify as a tax deductible charitable
gift. The value of this charitable gift is determined by an
appraisal. The value of the land without any of the proposed
restrictions is determined first. Then the appraiser determines
the value of the land after the restrictions are put in place.
The difference between these two values represents the value
of the conservation easement. If the conservation organization
pays any cash to the landowner as part of the transaction
then the value of the donation is decreased.
The total reduction in fair market value
reduces the value of the property for federal estate tax purposes.
Conservation easements are one of the most powerful estate
planning tools for landowners to use to reduce or eliminate
their federal estate tax liability while maintaining many
of the benefits of owning the land.
The charitable donation of a conservation
easement produces significant income tax benefits. A 2006
law approved a far-reaching expansion of the federal tax incentives
for private landowners who donate conservation easements on
their property.
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The
New Law
- Raises the deduction a landowner can
take for donating a conservation easement from 30% of their
adjusted gross income (AGI) in any year to 50% AGI;
- Allows qualifying farmers and ranchers
with more than 50% of their gross income from agricultural
activities to deduct up to 100% of their AGI; and
- Increases the number of years over which
a donor can take those deductions from 6 years to 16 years.
The new legislation only applies to permanent
conservation easements donated in 2006 and 2007. Braun &
Associates will be working closely with other members of the
conservation community to make these changes permanent.
Under the previous law, a landowner with
an AGI of $50,000 a year who donated a conservation easement
valued at $1,000,000 could take a $15,000 deduction for the
year of the donation and for an additional 5 years –
a total of $90,000 in tax deductions.
The new law allows that landowner to deduct
$25,000 for the year of the donation and then for an additional
15 years. That’s $400,000 in deductions.
If the landowner qualifies as a farmer or
rancher, that is, with more than 50% of their gross income
from agricultural activities, they can zero out their taxes.
In the above example, they could take a maximum of $800,000
in deductions for their $1,000,000 gift. The qualified farmer
or rancher provision also applies to farmers who are organized
as C corporations.
Most landowners are inspired to protect
their property and natural resources because they love their
land. But donating a conservation easement is a financial
decision also. The new tax incentives make this option much
more attractive to all those who own rural land.
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Conservation
Easements Require Professional Planning
Conservation easements are complex transactions
that require tremendous attention to detail to maximize their
benefits. There are issues related to the:
- selecting of a conservation organization,
- documenting ecology and uses of the land,
- understanding the impact of the conservation
easement on future owners,
- achieving the landowner’s financial
goals,
- working through the appraisal process,
- negotiating the easement terms with the
conservation organization,
- drafting of the easement language,
- qualifying the donation under the Internal
Revenue Code, and
- closing the real estate transaction.
With careful planning, our firm can tailor
a conservation easement to meet the specific goals of each
landowner and protect their rights under the agreement. The
attorneys at Braun & Associates can bring to bear their
extensive experience and unique expertise in working with
owners of rural land, land trusts, government agencies, and
conservation organizations to assist private landowners to
achieve their goals in these complex transactions. Our clients
benefit from the depth of our commitment to and knowledge
of this area of the law.
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