What are Conservation Easements?
Conservation easements are the most widely-used way to permanently protect family lands. They restrict future development. With a conservation easement, most or all rights to develop the land for residential, commercial, or industrial purposes are given up (extinguished), by registered deed. The conservation easement deed assigns the right and obligation to enforce the easement (restriction) to a non-profit land trust or public agency.
Private ownership of the land is maintained. The land continues to be owned and managed by the donor family (or successors) within guidelines mutually agreed upon by donor and donee. Management activities and considerations usually addressed in broad guidelines include agriculture, silviculture (forestry), and recreation. Public access and use of the property may be limited. The right to post the land is usually retained by the landowner. The landowner retains the obligation to pay property taxes and the right to sell the land, but the development restrictions spelled out in the conservation easement deed “run” with the property deed in perpetuity. Deed review by an attorney is strongly recommended.
Conservation easements often confer tax benefits (see below), but not always. The Harris Center holds a number of conservation easements from donors who gained no monetary advantage. The number one motivation for donors is love for the land, water, and wildlife.
What Are The Tax Benefits?
Federal Income Tax
When there is a recognized public benefit (protection of scenic qualities and/or natural resources, including soil, water and wildlife), the landowner (donor) may be eligible for an income tax deduction. The value of the easement (the deductible amount) must be determined by a qualified real estate appraiser. The appraiser is hired to calculate that value by determining the difference between the market value of the property without restrictions and the market value after development rights are given up by the conservation deed. The donor can generally take that value as an income tax deduction, up to an amount equal to 30% of the donor’s income. If the value is too large for the landowner to use in the year of the easement gift, the unused deduction value can be “carried forward” for up to five years following the gift. Advice from an accountant is recommended.
Federal Estate Tax
There is no tax liability for what is willed to a spouse. However, there is a limit (“unified credit”) to what can otherwise be willed or given exempt from tax. This limit is currently subject to change, but the tax on the non-exempt remainder can be very high, up to 45-50%! There are many “horror stories” of heirs having to sell “the family farm” or “the lodge on the lake” because that tax requires a cash payment, in general nine months after death.
A conservation easement can be a very useful tool for reducing or eliminating the estate tax because it reduces the market value of the land, hence the total value of the estate. The “horror stories” can instead have happy endings, with heirs receiving “the family place” protected by easement and with inheritance tax eliminated or much reduced. Currently, if the land is protected by a conservation easement, an additional 40% of the land value (already reduced by the easement) may be excluded from the estate tax base (up to a maximum of $500,000 for this additional 40% exclusion).
More good news: A landowner may currently gain all the above estate tax savings (but not the income tax deduction) by gifting a conservation easement in the will itself. Or, heirs may gain these savings post mortem by gifting a conservation easement by recorded deed prior to the due date for the estate tax return (nine months after death, with a six month extension generally available by official request to the IRS).
The property tax is not directly affected by a conservation easement, but it can be lowered by enrolling ten or more acres of undeveloped land in the New Hampshire state current use program. However, parcels under the ten-acre minimum which have significant value for conservation (e.g. a scenic point on a great pond), when protected by conservation easement, are eligible for the current use tax rate despite being under the ten acre lower limit.
One final note: A conservation easement ensures that the land will always be eligible for a reduced property tax rate even if the current use program is abolished.
For more information on conserving land with the Harris Center, please contact Land Protection Specialist Eric Masterson at (603) 525-3394 or email@example.com.