Conservation Easements Overview

Conservation easements are voluntarily conveyed, partial legal interests in land, and typically represent a formal expression of the property owner's concern for continued responsible land use and stewardship. A conservation easement conveys certain development rights or other rights of use, which are held in trust by a government agency or private, non-profit conservation organization. Conservation easements are used to protect wildlife habitats, ecosystems and open space, as well as recreational and historic features of the land. The Land Trust Alliance (www.lta.org) now estimates there are over 17,000 conservation easement in place nationwide, protecting over 5.0 million acres of land. These figures have more than tripled in the last 5 years, as the public has become more aware of the financial and environmental benefits associated with these easements.

Provided that certain conditions are met, donors of easements may be eligible for income, estate and/or property tax benefits. Although the duration of a conservation easement can vary depending on the desires of the landowner, tax benefits are available only for perpetual easements. The gift of a perpetual conservation easement to a qualified receiver can qualify as a charitable deduction for federal income tax, state income tax, inheritance and estate taxes. To qualify for tax benefits, an easement must be for "conservation purposes" outlined in the Tax Treatment Extension Act of 1980 (Public Law 96-541). These purposes are: natural ecosystems and wildlife habitats (including threatened and endangered species), open space on high scenic quality or areas considered important by a government plan or policy, wetlands, recreation or education, and historical sites and structures. Only one of these purposes need be met by an easement, but all such values must be protected if present.

The existence of qualifying conservation value is determined by studying the land and documenting these values. When a conservation easement limits any of these rights, the value of the land is affected. The value is determined by having a 'before' and 'after' appraisal completed by a qualified appraiser. First, the land is appraised in light of its full development potential. Then the land is appraised again, taking into account the easement restrictions which limit some or all of the property's development rights. The difference between these two figures is the value of the easement.

Under the IRS code, the donation of a qualified conservation easement may be treated as a charitable contribution. The income tax deduction is generally limited to 30 percent of the landowner's adjusted gross income each year. The landowner has up to six years to deduct the full value of the easement donation.

A significant part of the financial returns from ranch operations comes from tax benefits related to conservation easements placed on the ranch property. This tax benefit can be very substantial and provide tremendous returns to the ranch owners. Therefore, it is important that the owners understand the process and application of conservation easements. To fully understand the tax benefits associated with a conservation easement, the landowner should contact a knowledgeable attorney or financial advisor.

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