I. Introduction: What is a Conservation Easement?
What if you could preserve your property as farmland or wildlife habitat for future generations, and get a significant tax break while doing it? That is the allure of conservation easements. In short, a conservation easement is a restriction on the use of a property owner’s land. For example, the conservation easement could say that your farmland can never be split up and made into a subdivision, or the patch of woods behind your house can never be sold off and turned into a Wal-Mart.
Even after granting a conservation easement, the landowner still owns the property. However, there will now be a restriction on how the property owner can use it. This restriction will still be binding even if the owner sells the property or dies. The use rights are typically donated to a charitable organization dedicated to protecting the same types of land use. This organization would enforce the terms of the easement.
II. What Would I Get?
The most obvious benefit, of course, is the protection of your land from development, even by your own children. However, the tax benefits are also very enticing. Because the conservation easement is donated to a charitable organization, the value of the easement is deducted from income for the year. In fact, the conservation easement can be deducted against up to fifty percent of a taxpayer’s income in one year. Further, any remaining amount can be carried over for fifteen additional years. Clearly, this is a very valuable tax deduction.
III. What Should I Be Concerned About?
The main concern would be that the IRS would disallow the deduction. It is a real risk: the Service does look closely at claimed conservation easements. Recent cases point out a few areas in which to be careful. First, if you have a mortgage on the property, you have to get the mortgage company to agree to take a back seat to the holder of the conservation easement. Second, valuation is important. You have to make sure that you have an appraisal done by a qualified appraiser. Third, and finally, there is a requirement that you get a written acknowledgement at the time of the granting of the easement that the donee did not give you any goods or services in exchange for it. There are also other technical requirements, but these three concerns are where people have struggled.
IV. Is a Conservation Easement Right for Me?
As is often the case when you ask a lawyer this question, the answer is “it depends.” First, you have to have the proper kind of land to even consider this option. A wildlife habit conservation easement for a 500 square foot apartment obviously is not going to pass muster. Second, you need to document your desire for conservation. For instance, if the land has been used by your family for years to hunt, that would be relevant to the creation of a wildlife conservation easement. The IRS looks at these closely, and the Service is likely to pick up on transactions done only for the tax benefits. Third, you have to find a qualified organization to accept the oversight of the easement. Fourth, and finally, due to that close IRS scrutiny, you need a competent advisor. This is not a “do it yourself” area of the law. If all these fit, give us a call, and we can help!