Conservation Easements and Tax Benefits for Landowners
What is a Conservation Easement?
Conservation easements are voluntary, legally binding agreements between a landowner and a land trust or government agency that protect important open space resources. The agreements allow property owners to limit or prohibit development on their land. Conservation easements are permanent and run with the title so that all future owners of the land are bound by the original agreement. The land remains in private ownership and public access is usually not provided. Provided that certain conditions are met, donors of easements may be eligible for income, estate, and/or property tax benefits.
What Types of Land Can be Protected Through Conservation Easement?
Any type of undeveloped or sparsely developed property can be protected with a conservation easement. Conservation easements can be used to protect forested land, farmland, wildlife areas, wetlands, and other scenic or natural lands.
What Effect Does This Agreement Have on My Property Rights?
A landowner who conveys a conservation easement retains all rights to use the land for any purposes that do not interfere with the conservation of the property as stated in the terms of the easement. The landowner retains the title to the property, the right to sell it, the right to restrict public access, and the right to give it to whomever he or she chooses. However, most or all of the rights to develop are restricted or eliminated. The terms of a conservation easement are individually tailored to reflect each landowner’s particular needs, situation, and property. For example, one landowner may want to prevent any future development. Another may want to retain the right to construct an additional barn or shed. A third landowner may want to reduce, beyond what is allowed by current zoning, the number of homes that may be built on a certain parcel. The easement can be written to apply to the entire property or to only a portion of it.
How Is the Easement Value Determined?
Land ownership can be viewed as owning a variety of separate rights on the property. These rights include, but are not limited to, the right to timber and/or farm the land, the right to build on the land, and the right to exclude the public. 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 who meets certain requirements. 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. In instances where the easement is donated and qualifies under IRS regulations, this amount may also be the value of a charitable contribution which may be taken as an income tax deduction.
What are the Tax Benefits of a Donated Conservation Easement?
Federal Income Tax Benefits - Under the IRS code, the donation of a qualified conservation easement may be treated as a charitable contribution. The value of the contribution can be deducted at an amount up to 30 percent of the donor’s adjusted gross income in the year of the gift. If the easement’s value exceeds 30 percent of the donor’s adjusted gross income, the excess can be carried forward and deducted (again subject to the 30 percent limit) over the next five years, if needed.
Estate Tax Benefits- Donations of easements, whether during the landowner’s life, by bequest, or by the heirs within 9 months of the owner’s death, may reduce the value of the land upon which estate taxes are calculated. This can greatly benefit the landowner wishing to transfer land to relatives. The estate tax benefits of a conservation easement can often mean the difference between heirs having to sell property to pay estate taxes or being able to keep the property in the family.
Property Tax Benefits - The conveyance of a conservation easement may reduce a landowner’s property taxes. This depends on current zoning and land use, current assessed value, and whether the owner participates in Act 319 (Clean and Green). Typically, landowners in Monroe County with conservation easements are assessed at the Act 3 19 rate.
What Criteria Must be Satisfied?
To be eligible for most of the above tax benefits, the agreement must be entered into with a qualified conservation organization, such as the Pocono Heritage Land Trust, or unit of government. In addition, the terms of the easement must be perpetual and they must meet other IRS requirements. The criteria that must be satisfied for the Pocono Heritage Land Trust to accept such a donation are available upon request.
What Rights Does the Easement Holder Have to My Land?
If the Pocono Heritage Land Trust accepts an easement on your land, it is obligated to oversee and enforce the easement’s terms and conditions. For example, they have the right to enter and inspect the property (typically once a year with prior notice) to ensure that the terms of the easement are being upheld. The Land Trust does not have the right to use your property, nor does the easement typically allow public access to the property since it remains privately owned.
To learn more about conservation easements, contact:
Pocono Heritage Land Trust
P0 Box 553
Pocono Pines, PA 18350-0553
570 643-2890 firstname.lastname@example.org