What is a conservation easement?

Voluntary land protection agreements between private landowners and a land trust such as the ESLT are also known as conservation easements. Easements allow landowners to retain title and management of their property, while designating how the land may be used now and in the future. Every recorded easement is a unique document, customized to the specific needs and desires of the landowner and to protect specified resources effectively. Once signed by both the landowners and the land trust, the easement is recorded with the county where the property is located and becomes part of the public record or deed for that property.

Who establishes the dollar value of a conservation easement?

For purposes of a donated easement, an appraisal will determine the value of the property before and after the encumbrance of a conservation easement. The value of the easement is the difference between these two figures. The monetary value of the conservation easement can be used to offset the federal income taxes on other income when a landowner donates the development rights to a nonprofit. Appraisals need to be done with care by a certified appraiser who is familiar with conservation easements, with local real estate conditions, and with the particular type of land use in question. The IRS will review this document.

What costs are landowners responsible for when donating conservation easements?

Landowners donating a conservation easement usually pay for their own legal and tax advice, appraisal and escrow transaction costs. Additionally, most land trusts establish stewardship funds to pay costs associated with monitoring and protecting easements in perpetuity. Landowners are asked for contributions to a trust’s stewardship fund to cover these costs. This donation to a stewardship fund, along with other easement costs, may be tax-deductible.

Can I still build on my property?

The landowner may retain specified development rights in a conservation easement agreement. For example, a conservation easement protecting a farm or ranch may allow construction compatible with agricultural operations as well as changes in crop selection or management practices. A conservation easement can specify the location, size and type of one or more residences or other development on a property.

What are the tax benefits of a conservation easement?

At least two and potentially three kinds of tax benefits are associated with a conservation easement: income tax deduction, a reduced estate value, and possibly lower real estate taxes. If a conservation easement satisfies the Internal Revenue Code requirements, the grantor may receive a charitable income tax deduction after the granting of the conservation easement. For income tax purposes current law says this charitable deduction may be used over a period of six years for reducing the grantor’s income tax. For estate tax purposes, the granting of an easement usually results in a lower market value for the property. When an estate settles, the lowered asset value for the property reduces its federal estate tax burden.

How much land must be included in a conservation easement?

Any amount. A conservation easement may apply to only a small part of an owner’s land or to all of it, depending upon what the owner wants to protect and whether the easements and restrictions are acceptable to the monitoring organization. Any property of value for agriculture, forestry, recreation, water resources, and wildlife habitat or for its scenic or historic qualities may be protected by means of a conservation easement. As a practical matter, the smaller the parcel the less likely that it will have significant conservation values that warrant placing a conservation easement on it.

Can I still sell my property?

Yes, property with a conservation easement can be bought, sold and inherited. However, the conservation easement is tied to the land and binds all present and future owners to its terms and restrictions.

Can easements be purchased?

Yes, this is typically known as “purchase of development rights” or PDR. This conservation method pays willing landowners to restrict development of their land. After selling the development rights, the landowner retains all other rights of ownership, using the land for agriculture, recreation, hunting, or selling or transferring the land to others. Typically, landowners sell their development rights to a private conservation organization or government entity. These organizations do not acquire the right to build anything on the land, but only the right and responsibility to limit development of the property as described in provisions of the agreement. Public access is not permitted without landowner consent. The value of the easement is usually determined by an appraisal.

Does every easement have to be perpetual?

For the donation to qualify for income and all possible estate tax benefits, the conservation easement must be perpetual and apply to all future owners. Some organizations, however, may be willing to accept or purchase conservation easements that are designed for a period of years.

Does a conservation easement grant public access to my property?

No. Landowners retain control of access to their property. They may choose to allow access to specific groups or the general public in their conservation easement agreement but are not required to do so, other than access that is required to allow the monitoring of the property by the organization that owns the easement.

What if I don’t own the mineral rights to my property?

This is a complicated issue that should be discussed with professional advisors. However, a landowner who does not own the mineral rights to his or her property can qualify for income or estate tax benefits if:

  • ownership of the mineral rights has been separated from the land and remains separated today; and
  • the owner proves that the probability of surface mining occurring on the property is “so remote as to be negligible.”

Can conservation easements be changed or revoked?

Because conservation easements qualifying under IRS regulations are designed to be permanent, landowners should assume that it would not be possible to revoke an easement. However, conservation easements can be amended if:

  • both the easement holder and the landowner agree to the terms of the change; and
  • the IRS recognized “conservation purpose” of the conservation easement is not negatively affected by an amendment.

What if my property is mortgaged?

In order for a donated conservation easement to qualify for an income tax deduction, the landowner must acquire a mortgage subordination agreement from the mortgage holder, often a bank. With this document, the mortgage holder agrees to follow the terms of the conservation easement in the event of foreclosure.

What happens after the easement is in place?

After signing a conservation easement, the land trust and the landowner begin a working partnership to assure that the intended conservation objectives become a reality. Landowners continue to make all of their own property management decisions. The easement limits only those activities, such as subdivision, commercial development, vegetation clearing or surface mining, as specified in the agreement. A land steward from the ESLT will schedule annual monitoring visits to the property. These occasions also provide an opportunity to answer questions or respond to concerns.

What will a conservation easement mean for my children?

A conservation easement may reduce estate taxes paid by heirs. Future landowners, including family members, will abide by the terms of the conservation easement agreement and will continue the relationship with the organization that “holds” the easement. Families should consider the trade-off between immediate tax benefits resulting from reduced property value and permanent restrictions on land use. Professional assistance is available and recommended for families considering this evaluation.

Does every easement qualify for an income tax deduction?

No. To qualify as a charitable contribution, conservation easement donations must

  • be perpetual;
  • be donated to a qualified organization (a nonprofit land trust or public agency); and
  • meet one of the “conservation purposes” tests outlined in the Internal Revenue Code.

What are the “conservation purposes” recognized by the Internal Revenue Code?

The Internal Revenue Service Code Section 170(h) requires that conservation easement donations meet one or more of the following conservation purposes:

  • protects relatively natural habitats of fish, wildlife or plants;
  • preserves open space – including farms, ranches or forests – either for scenic enjoyment or in keeping with a clearly delineated public policy;
  • preserves land for public outdoor recreation or education; or
  • preserves historically important land or certified historic structures.

Each conservation easement must meet one, but not all, of these recognized purposes.

Is a conservation easement appropriate for every landowner?

Conservation easements are designed to meet the site-specific needs of the individual landowner and land trust. They may not, however, be appropriate for every situation. Landowners considering an easement should consult with family members, professional tax and legal advisors, and a land trust representative such as Eastern Sierra Land Trust, to determine whether this tool will help accomplish a landowner’s long-term conservation and economic goals.

What if more than one person owns the property?

All owners of a property must agree to the terms of the conservation easement before it can be recorded.

To what extent does the government get involved?

Other than providing the statutory context that identifies conservation easements as real, transferable property rights, these transactions usually occur as private agreements between property owners and qualified, private, non-profit organizations such as the ESLT. The Internal Revenue Service becomes involved if the donor seeks tax and estate benefits for the charitable gift.

Can a conservation easement be donated by will?

Yes. The landowner should contact the intended easement holder before conveying the easement by will to ensure that the organization will accept the donation. If the easement qualifies under federal tax law, its value is subtracted from the landowner’s taxable estate, reducing estate taxes for heirs. Also under Federal law, the executor or heirs of an estate can donate a qualified easement after the death of the landowner, even if the landowner’s will does not donate an easement. A landowner who might want their executor or heirs to be able to make this donation should clarify the intent on this matter by stating in their will that the executor or heirs have this power.

Special thanks to the Palmer Foundation, a Colorado-based land trust, Texas Parks and Wildlife, the Texas Land Trust Council and David Braun of Braun & Associates for providing assistance in preparing this Conservation Easement FAQ sheet.