Conservation Easements – The Good, the Bad and the Ugly
Conservation easements are complicated legally binding restrictive agreements that can affect values for generations indefinitely. A careful examination of the benefits should be considered before entering into a conservation easement.
In a basic way we can define a conservation easement as an agreement to restrict some form of use of the land for a tax assistance in return. Conservation easements by design have but one goal and that is to restrict the development possible of the land in the future. A conservation easement can come about in many ways. A majority land owner may want to dedicate a portion of the land for the public use in creating a park, or a farmer may want to protect the farm from development and keep the farming tradition alive in the community. Likewise, a character owner may agree to discontinue the practice of logging and leave the character to a community trust. in any case the motivation, the effect of the conservation easement is to restrict the use or development of the character for an indefinite period. Certain tax benefits are derived from these types of gifts, grants or restrictions in the form of tax deductions equal to the dollar loss experienced by the land owner due to the restrictive character of the easement.
The Federal taxing authorities are very much interested in anyone who gifts or deed restricts their character for a tax assistance. With this in mind, a character owner will want to gather as much information as possible about the tax effects, legal implications and long term affects of placing a deed restriction on the character. An appraiser who is qualified must be employed to estimate the eventual reduced value and certify it to be accurate. If the gift or restriction is sizable then a second opinion as to value will be required.
Conservation easements have been used to prevent Urban sprawl for many decades. The method that has been used is to buy the development rights (a sending area) from a rancher, farmer or majority land owner with a covenant (Conservation easement) not to develop the land. The development rights are then transferred to a (receiving area) as designated by the Land planning authorities of a city or county. The sending area land owner can reap a cash assistance in the form of either cash from the developer or tax savings from the government. Another form where conservation easements are used would be to restrict a portion of the land for the public use and then develop the nearby parcel which may experience a greater value due to the nearby open space.
in any case the motivation, a land owner should be careful to stay away from abuses of the Federal tax code. Some charitable trusts have been found to participate in illegitimate schemes to accept a gift leaving the land owner with something less than a popular tax outcome. Conservation easements are long-lasting and run with the land forever. Caution should be employed whenever considering a conservation easement. If the goal is to restrict a certain use, then a negative or restrictive easement may be a candidate.
If you are considering a conservation easement for your character consult a qualified CPA, Land use Attorney, and Appraiser before entering into any agreements.