Today’s guest post is by Marie Bostick, Executive Director of Land Trust of North Alabama.
Many different strategies may be employed to conserve land including, donations, bargain sales, bequests and conservation easements. Each has its own benefits and constraints based on the goals of the parties involved in the transaction. This article will focus on the use of conservation easements.
A conservation easement (CE) is a land conveyance from a private land owner to either a governmental entity or non-profit 501(c)3 Land Trust, which places restrictions on a property that has appropriate conservation values. The holder of the conservation easement (either the Land Trust or governmental entity) is responsible for monitoring the property in perpetuity to make sure the easement provisions are not violated. The easement itself is negotiated between the parties to meet specific conservation goals and allow the land owner the continued to use of the property, so long as the uses don’t conflict with the conservation goals. A key benefit to a conservation easement is the land owner’s ability to take a federal tax deduction for the value of the donation. However, in order to take advantage of these tax benefits, the land owner must comply with the IRS Code requirements.
IRS Code 170 (a) and (h) provide the requirements that must be followed to execute a “qualified” conservation easement. One of these requirements is that a “qualified” entity – such as the Land Trust of North Alabama – must hold the easement. Another requirement, as mentioned above, is that the easement be held in perpetuity. For example, the restrictions that are placed on the property through the CE must be in the recorded document and the Land Trust must monitor and enforce those restrictions forever. In the event the fee interest in the land is sold to another party, the conservation easement will run with the land and the restrictions remain in effect. In order to assist the entity that is holding the easement to perform its enforcement obligation, a stewardship and defense donation is often included as a part of the overall transaction. Of course, a key requirement is that the property serves a valid conservation purpose, and the IRS Code list four conservation values that are used to make this determination. Most land trusts also have criteria for conservation properties which must be met. While there is often overlap between these conservation values, the land owner and conservation easement holder must work together in determining if the conservation easement is appropriate for both parties. Lastly, the CE must be substantiated, which is typically done through a qualified appraisal and appraiser and documented by way of a Form 8283.
While completing a Conservation Easement to the standards of the IRS and the easement holder is a meticulous and detailed process, a landowner can realize substantial federal tax benefits. Currently, a landowner can deduct the value of the conservation easement donation up to 50% of their annual income and carry forward any remaining donation value for period of up to 15 years. Qualified ranchers and farmers are eligible for greater tax incentives, with the ability to deduct the value of their donation up to 100% of their annual income, with a carry forward period of 15 years.
Executing a conservation easement is a complicated process and the benefits vary with each person’s unique situation. Anyone considering a conservation easement should consult with their own tax professional to determine whether it is a viable option for them.
For information about Land Trust of North Alabama and working with them to protect your land, visit www.landtrustnal.org/preserve-land.
