The Financial Basics of Conservation Easements

Conservation easements are voluntary agreements landowners can utilize to permanently protect their property from incompatible uses. They also have fairly significant financial incentives that can benefit landowners by providing tax deductions or direct cash payments. This article gives a brief overview of the financial basics of conservation easements.

The information provided in this article is for general informational purposes only and does not constitute financial, tax, legal, or investment advice. For specific advice tailored to your individual circumstances, please consult with a qualified financial advisor, tax professional, or legal consultant.

What is a Conservation Easement

A conservation easement is a type of voluntary, land protection agreement between a landowner and a land trust (or other qualified entity) that contains certain restrictions on the subdivision, development and use on the landowner’s property. This protects significant resources such as:

• productive agricultural land,
• ground and surface water,
• wildlife habitat,
• scenic views,
• cultural and historic sites, or
• recreational lands.
  
  

Why Landowners Enter into Conservation Easements

Landowners choose to enter into conservation easements for various personal, financial, and environmental reasons. Many landowners have a deep connection to their land and want to ensure it remains undeveloped and protected for future generations.

Conservation easements allow landowners to preserve their family’s heritage, such as farms, forests, or ranchlands, as a lasting legacy. Landowners may also want to safeguard critical habitats, water resources, or other natural features from degradation.

Some landowners who live in rapidly developing areas often use conservation easements to protect their land from being converted into subdivisions or commercial developments. Conservation easements provide legal protection that outlasts changing local zoning laws or future development pressures.

Some landowners are even motivated by the broader public benefit impact of conserving land, such as protecting clean water, wildlife corridors, and scenic views for their community and for the benefit of future generations.

While the reasons for landowners to enter into conservation easements are varied and specific to each landowner, there are also many financial benefits to landowners.

Basic Financial Benefits of Conservation Easements

There are two basic considerations of what types of financial benefits a landowner can receive from a conservation easement; is the landowner donating the conservation easement or are they selling the conservation easement?

When we say donating or selling the conservation easement, what we mean is they are donating or selling the development, subdivision and other rights through imposition of the conservation easement. These landowner rights have value that can be quantified through an appraisal conducted by a qualified appraiser.

Donated Conservation Easements

The donation of a conservation easement qualifies as a charitable contribution under Section 170(h) of the Internal Revenue Code. The amount of the deduction is based on the value of the development rights the landowner gives up.

A qualified appraiser determines the difference between the fair market value of the property before and after the conservation easement is placed on it. This difference is the value of the conservation easement and the basis for the tax deduction. Landowners can deduct up to 50% of their adjusted gross income (AGI) annually.

For qualifying farmers and ranchers (where at least 50% of income comes from agriculture), the deduction limit increases to 100% of AGI. If the full deduction amount cannot be used in a single year, it can be carried forward for up to 15 years (in addition to the year of the donation) or until the deduction amount is used up, whichever occurs first.

Purchased Conservation Easements

Landowners can be compensated for their conservation easements through cash payments instead of donations. There are many federal, state and local programs and grant resources that pay landowners for conservation easement restrictions.

The number and variety of conservation easement grant programs are too expansive to include in this article. These programs are often based on the type of land, activities conducted on the land, and conservation values being protected. For example, there are federal grant programs that fund the purchase of agricultural conservation easements.

There are other federal programs that fund forested property conservation. States and local governments also have similar programs.

Bargain Sale of Conservation Easements

There are also hybrid transactions where a landowner sells a conservation easement to a qualified organization (such as a land trust or government agency) for less than its full market value. This arrangement allows the landowner to receive financial compensation while also benefiting from potential tax advantages for the "donated" portion of the easement’s value.

Other Ways to Financially Benefit from Conservation Easements.

Estate Tax Benefits

Placing a conservation easement on the land can reduce its appraised value, which lowers the taxable value of the estate. This can make it easier for heirs to afford estate taxes and retain ownership of the land. By reducing the property’s market value, the estate tax owed on the property is reduced accordingly.

Property Tax Benefits

In some states and individual counties, property taxes are reduced for land under a conservation easement. The conservation easement typically lowers the land’s market value since it restricts development. This can lead to lower property taxes in jurisdictions that account for the conservation easement restrictions.

State Tax Credits

Fourteen states and territories offer some form of tax credit for conservation easement donations. The Land Trust Alliance has a created a useful resource for learning more about the state tax incentives.

Conclusion

Conservation easements offer several financial benefits for landowners, helping them achieve their conservation goals while providing sometimes significant economic incentives. The tax advantages, reduced estate taxes, potential property tax reductions, and financial compensation can be a great motivator for landowners to participate in conservation.

It is critical that we support these financial benefits in order to preserve the ability for landowners to receive financial compensation for voluntarily gifting or selling their development and subdivision rights into perpetuity.

Preserving financial incentives for landowners who enter into conservation easements is essential for preserving the myriad of conservation values within our communities. You can help make a difference by supporting Unique Places to Save. Your support will help ensure these financial incentives continue to provide healthy food, clean water, fertile soil, and habitats for countless species.