Keep the Land, Take the Deductions

Conservation Easements are Not as Scary as You Thought

by Tarrell Bennett | Dec 27, 2017

You’ve heard of them – conservation easements. But maybe the idea of giving up certain rights to your property sent you into a panic mode.

Yet with enhanced benefits added in recent years, it’s a good time to take a fresh look at using easements on certain parcels of privately-owned property.

For starters, land conservation donations come with some very enticing incentives:

  • Federal income tax reduction
  • State income tax credits
  • Estate tax benefits
  • Property tax reductions

Those sound pretty good, right? Then let’s address that whole giving up rights thing.

It helps to remember that conservation easements are a tool to protect land from commercial development so it can be enjoyed by current and future generations. Easements offer a way to preserve wildlife and keep nature in our communities – forever.

So when you donate an easement, you’re not giving up all rights to its use – you’re just agreeing to specific parameters related to that use, in order to keep it in a more natural state.

“All you’re really giving up is the ability to develop the property,” says Tarrell Bennett, Chief Lending Officer at Southwest Georgia Farm Credit. “If it’s being used for agriculture, it must stay agriculture. But you can still change the use from row crop to timber or pasture. As long as it stays ag.”

In the process, you’ll also be partnering with a land trust or government agency to assure those parameters are met long after you’re gone. To ease other concerns: You’re responsible for adhering to the terms of the easement, and any change must have consent of that managing body, but you do not have to allow for public access to the property. And the land can be sold or passed on to heirs, it’s just that all future owners must abide by the terms of the easement as well.

Explore the possibilities

The first step when considering a conservation easement for land you own, or are considering purchasing, is to talk to a nonprofit Land Trust or governing agency.

Find a Land Trust in Georgia through the map on this page: findalandtrust.org

The Washington, DC based Land Trust Alliance also provides brochures and useful information.

Changes “Permanent”

Conservation easements went through some changes in recent years to close loopholes and prevent misuse, but fortunately federal tax incentives that made them so popular when first introduced were restored in 2015.

Donating an easement essentially involves determining the difference in value of the property say, if developed or subdivided, and the value of the property encumbered with an easement. That difference is the value of the donation. This allows you to take a deduction against a percentage of your adjusted gross income on federal taxes. And you have the option of spreading it out over a number of years, up to the appraised value of the donated easement.

In the most recent conservation measure, you can take a deduction for up to 50% of your annual income the first year and any of the following 15 years, until you’ve exhausted the amount equal to the appraised value of the land. The incentives are even sweeter for farmers and ranchers: They can deduct up to 100% of their income with the 15-year carryover.

For example, say a landowner earns $50,000 a year. They donate a $1 million conservation easement and decide to take a $25,000 (50% of income) deduction for the year of the donation and for each additional 15 years. The result: $400,000 in deductions.

In that same scenario, a farmer or rancher can deduct $50,000 (100% of income) in the first year and then for the following 15 years, winning them a maximum of $800,000 in deductions.

There are benefits related to state income, property tax and estate tax, too. A Land Trust can help you make the most of them.

So, what if your property is income producing, such as irrigated farmland? As long as it stays in the same state, irrigated agricultural real estate, you’re fine, Bennett says. That means you’ll be generating the same amount of income with or without the conservation easement.

Besides the monetary benefits, a huge attraction for easements is esthetics – the assurance that the property will stay in its current, undeveloped state. Whether you sell it or give it to your heirs, that non-commercial landscape will be preserved in perpetuity.

It’s important to know that you don’t have to place all of your land in the easement, Bennett says. You can pick and choose among the tracts and exclude certain parcels from the whole; the conservation properties do not have to be contiguous. “For example,” he says, “if you want a home site on 25 acres, you can keep it out of the conservation easement.”

Farmers who own timberland or irrigated farmlands and are paying a lot of taxes are beginning to understand the value of an easement. The idea of taking advantage of the tax reduction and preserving property in its current state is enticing. “A lot of these properties have been in the families four or five generations,” Bennett says. They like the idea of that legacy continuing.

If you’re thinking about buying an ag tract, you may want to consider looking at a conservation easement. You can continue to own and use the land, while taking advantage of tax and other benefits. Be aware that you have to own the property for at least one year before it’s eligible to be put into a conservation easement.

Tarrell Bennett
NMLS 700134

Disclaimer: Always consult with your CPA regarding tax advice and a real estate attorney regarding a conservation easement donation.