Tax season is upon us, so we at the Land Use Lab wanted to address at least one land use with corresponding tax benefits: a conservation easement.
In a nutshell, a conservation easement exists when a landowner creates a restriction on his property for conservation purposes, limiting the development of the property. The easement is then donated to a certain government agency or a public charity. A conservation easement may permit a landowner to take a charitable tax deduction.
The extent of the governmental/charitable organization’s control over the easement depends upon the terms of the easement itself. However, the easement must be permanent, binding all current and future landowners.
Conservation easements must be for one of the following purposes:
- Preservation of land areas for outdoor recreation by, or for the education of, the general public;
- Protection of a relatively natural habitat of fish, wildlife, plants or a similar ecosystem;
- Preservation of open space; or
- Preservation of a historically important land area or certified historic structure.
More often than not, the tax benefits of conservation easements are determined by qualified appraisals, since an appraisal is required if the value of the easement exceeds $5,000. The appraisal must take place no sooner than 60 days before the date on which the charitable contribution is made and no later than the due date of the landowner’s tax return on which the charitable contribution is first claimed.
Generally, the amount of the charitable deduction will be the fair market value of the easement. Sometimes, an appraiser can determine the value of the easement from comparable donations nearby. More frequently, the appraiser will value the land with the easement and without the easement, calculating that the difference between these two sums is the value of the easement and the amount of the charitable donation.
Conservation easements were targeted by the IRS several years ago, as various entities abused the appraisal process. Because of the many complexities in both drafting a conservation easement and in receiving a tax deduction for such an easement, it is generally advisable to consult a real estate and a tax attorney in the early stages of planning. If you are considering a conservation easement, please contact our Firm for assistance.