Conservation Easements

A conservation easement is a type of express (written) easement. A legal agreement between an owner of real estate and a second party, usually the government, makes it. The agreement imposes land development restrictions based on conservation values. Under certain conditions, conservation easements get tax savings through the Internal Revenue Service (IRS).

Land Conservation Objectives

The easement must have a valid conservation purpose for the easement holder. Protection of the land or resources must be justified for conservation reasons. Different land trusts and government entities have varying requirements to meet. Generally, the IRS requires purposes such as the following:

• Outdoor recreation by, or for the education of, the general public
• Protection of a relatively natural wildlife habitat, e.g., for fish or plants
• Preservation of open space, wetlands, agricultural lands, forestry, or forestland
• Preservation of a historically important land area, real estate, or buildings

Private Land Property Rights are Voluntarily Limited in Perpetuity

The owner must freely choose to enter into a conservation easement agreement. It may be part of a sale or donation to a conservation organization, which becomes the easement holder.

When the agreement gets recorded, the owner can file it as a Conservation Easement deed. It will bind not just the landowner but also any future successor. To enforce the deed, the landowner and the easement holder may regularly inspect the property for conservation compliance.

The agreement must be permanent and irrevocable, including the future use of the real property. According to the Internal Revenue Code, a conservation easement must be permanent to qualify for the IRS's income and estate tax benefits. If a conservation easement is valid for a set period, for instance, 10 years, the landowner may be eligible for certain property tax benefits. But, they will not qualify for federal and state income tax deductions and estate tax benefits.

Qualified Organizations as Future Owners of the Land

A qualified easement holder must hold the easement. Examples include:

• Land trusts
• Government entities, such as a county or city
• Nonprofit partnerships or organizations

Some federal agencies also serve as conservation easement holders, including:

• The U.S. Forest Service
• The U.S. Fish and Wildlife Service
• Members of the Land Trust Alliance

Government agencies are not the only recipients of easement donations. Private ownership is acceptable as long as it is not merely for the economic benefit of a private landowner. For example, a land trust is a private, nonprofit organization eligible for land stewardship.

Restricted Uses of the Land

The easement must restrict the development and use of the property. Normally, private landowners have the right to do the following with their real estate:

• Sell or subdivide
• Raise animals, farm, and plant crops
• Cut lumber and mine
• Build improvements

A conservation easement does away with some or all these ordinary land rights. The easement restricts future development to protect certain natural resources, such as water quality, for future generations. Prohibitions could include limitations on roads, structures, drilling, or excavating.

The landowner could keep certain rights as long as those rights do not interfere with the conservation goals of the easement. For example, the landowner could keep the development right to:

• Use the land for ranching
• Restrict public access
• Construct more structures on certain sites

Tax Deductions and Conservation Easements

Suppose a landowner donates a permanent conservation easement to a land trust. The landowner may deduct the easement's value from federal and state income taxes. The value of an easement is:

1. The difference between the fair market value of the land without the restriction and
2. The fair market value after the restriction.

If the parcel's value exceeds $5,000, a qualified appraiser must compute the conservation easement's value. In some cases, the land may have been held for investment purposes for a period recognized by the IRS. In these situations, landowners may deduct a certain percentage of their adjusted gross income over years until they have exhausted the easement's value.

Property Entry and Inspection

The organization that holds the easement has the right to enter and inspect the property. It is legally obligated to ensure that the property complies with the easement terms. It may hire an inspector to watch the land from time to time. Ensuring compliance is very important for tax purposes and meeting conservation goals.

A Lawyer Can Help With Conservation Easements

If you've got questions about a conservation easement, consider consulting with a real estate attorney. They can help you create an easement, understand your rights under it, or determine its validity.