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Conservation Easements Provide Options for Landowners
The loss of farmland and greenspace is an increasing concern as Boone County continues to grow and more farmland is consumed by housing developments and industry. Farmers who become unable or unwilling to continue farming may feel they have no other option but to sell the farm for its highest and best use, which is often development. The conservation easement is a little-known vehicle that can provide a viable alternative to those who do not want to see their land developed. A conservation easement places restrictions on the use of the land without interfering with its ownership. The landowner may still sell his land, pass it on to his heirs, or make a gift of the land to whomever he chooses. The only change with a conservation easement is that any subsequent owner of the land must abide by the restrictions contained in the easement. Placing a conservation easement on land may also provide significant income, estate and property tax benefits for the landowner. The easement must be perpetual and must be granted to a charitable organization exclusively for conservation purposes in order for the landowner to realize its full tax benefits. The true beauty of a conservation easement is its flexibility. It is amenable to any use restriction from the very broad to the very specific, so long as it complies with certain IRS requirements. If a landowner decides to place a conservation easement on his land, he must find a “holder” for the easement. The holder monitors the easement to assure compliance and becomes the easement’s “enforcer” should a violation occur. In order to meet IRS requirements, the holder must be either a governmental entity or a charitable organization, such as The Boone Conservancy, Inc.
The various tax benefits provided by a conservation easement provide extra incentive for landowners. When a conservation easement is placed on land forever restricting its future use, the value of the land is usually greatly reduced. When a conservation easement is granted, the difference in the land’s value before and after the easement may qualify as a tax-deductible charitable contribution. For example, if land is worth $1,000,000 before the easement and $650,000 after the easement, the value of the gift is $350,000, which represents the income tax deduction the landowner is allowed, subject to certain IRS limitations. If the landowner has adjusted gross income of $100,000, the tax deduction for the year of the donation is 30%, or $30,000. The balance ($320,000) remains available to carry forward and use as a deduction against income for the next five years.
A property owner who donates a conservation easement may also receive certain estate tax benefits. By forever restricting the future use of the property, the property’s value in the estate is usually greatly reduced, so the amount of estate taxes due on the property is also reduced. For example, if the value of the property is $1,000,000 before the easement and $650,000 after the easement, the value of the property included in the estate for estate tax purposes would be limited to $650,000. An additional reduction in value may also be available under the tax law. An executor may make an election to exclude up to 40% of the value of land under an easement from the decedent’s estate for federal estate tax purposes, subject to certain IRS limitations and provided it meets certain IRS requirements.
Property taxes may also be reduced with a conservation easement since the property’s fair market value is reduced. Lower property taxes are not automatic and depend on the property valuation assessor fully understanding how the easement reduces the value of the property. Keep in mind that if the property is already assessed at its agricultural value, there may be no further reduction available.
Conservation easements offer landowners an effective means to forever protect their property from encroaching development while gaining substantial tax benefits. The Boone Conservancy currently holds conservation easements on three parcels of land protecting approximately 35 acres. Contact The Boone Conservancy at 689-0834 or thebooneconservancy@fuse.net to see how a conservation easement can work for you.
This is offered for information purposes only and is not legal, accounting, financial planning, or other advice. Please consult your attorney, accountant, financial advisor and other professionals in order to determine what is appropriate for you.