Land, sweet land It’s obviously a beautiful piece of land, what with the lake and mountains in the distance, but you know the area is prime real estate for developers. You’d love to keep the land untouched for future generations to enjoy. With a conservation easement, you can. And it gets even better: A conservation easement also offers significant tax benefits. Conservation easement in action A conservation easement is an agreement to permanently restrict some or all of the development rights associated with your land. You grant the easement to a qualified conservation organization and record it so it’s binding on future owners, not just you. The organization monitors the use of the land and enforces the easement. You and your family continue to own the land and may use it in any way you see fit, so long as it’s consistent with the easement’s terms. In addition, you may sell the property, give it away or leave it to your family — subject to the easement. To preserve the easement’s tax benefits, select a conservation organization that’s either a government entity or a public charity, such as a land trust, that’s committed to protecting the easement’s conservation purposes and has the resources to enforce the easement. You also need to obtain a qualified appraisal to establish the value of the land and the easement. The easement must be granted exclusively for one of the following conservation purposes: • To preserve open spaces for the public’s scenic enjoyment or pursuant to a governmental conservation policy in a way that yields a significant public benefit, • To protect a relatively natural habitat of fish, wildlife or plants, or • To maintain land for outdoor public recreation or education. The easement must be carefully drafted to avoid misunderstandings over which uses of the land you’re giving up and which you’re retaining. If you grant a conservation easement during your life, you can take a charitable deduction for the value of the easement for the year you grant it. The easement’s value is the difference between the land’s value before and after you grant the easement. But the charitable deduction generally is limited to 50% of your adjusted gross income (AGI). The excess can be carried forward and deducted during the following 15 years, but if the easement’s value is large relative to your AGI, much of the charitable deduction may go unused. One solution is to grant a conservation easement on a portion of your land, take the charitable deduction over the allowable years and then grant an easement on another portion of the land. Also note that, as of this writing, after 2009 the rules become more restrictive. A conservation easement also can provide you with estate tax benefits in two ways. First, the easement depresses the land’s value, reducing the size of your taxable estate. Second, the tax code allows a portion of the land’s value (based on a complex calculation) to be excluded from your estate by making an irrevocable election with the IRS. To qualify for the exclusion, you or a family member must have owned the land for at least three years prior to your death. Good for you, good for your family You were lucky to have the opportunity to buy or inherit such a pristine piece of land, and you want future generations to have the opportunity to enjoy it. A conservation easement may help you achieve that goal while also enjoying significant income and estate tax savings. • |