By Brian Sullivan, Forever Forests LLC
Landowners who manage large parcels of property for wildlife habitat sometimes use conservation easements as a part of their overall strategy for land management. Placing a conservation easement on a QDMA associate property is one of the ways you can qualify for the highest levels of membership. It is an excellent tool to ensure that your land legacy and commitment to wildlife habitat lasts forever. It can also be used as a very smart way to bolster your economic plan by receiving Federal tax deductions for a charitable contribution, if the proper procedures are followed. However, there are many complex aspects in the process, and a lot of misconceptions tend to float around. This article will take a look at conservation easements, how they work, and important points for owners to understand when considering making this very big step in land preservation.
What is a conservation easement?
A conservation easement is an agreement/legal contract between a landowner and a qualified land conservation organization (such as a land trust) or governmental agency (such as a county, city or state) to constrain development on a certain piece of land, in order to preserve natural habitat, resources, scenic vistas or forestry and agricultural practices. These reasons for preservation are known as conservation values. The terms of the easement vary depending on the individual parcel of land and the objectives of the owners, but typically the contract is an agreement to preserve the land in a mostly natural state and to prevent commercial or residential development on the land. In other words, the owner is agreeing to preserve the property, and not build a subdivision, strip mall or other real estate development on the land.
What am I agreeing to do? Do I still own my land?
A conservation easement is not a land sale. The original owner remains the owner until they decide to sell or donate the land to another entity. The government doesn’t own your land. The land trust doesn’t own your land. You (or your company) own the land. The easement works in a way similar to how a covenant or restriction works in a residential development. The restrictions “ride with the land” and are conveyed to the next owner, should you decide to sell or donate your land. The easement is a set of developmental restrictions and reserved rights that preserve the natural integrity of the land and the rights of the owner. The land trust (or other regulatory body) hold the legal obligation to inspect the land on a regular schedule (usually annually) and to uphold the agreement in the courts if necessary. The owner has the responsibility to maintain the land according to the restrictions outlined in the agreement, often called a “Deed of Conservation Easement.” It is very important to consider what you, or those who come after you might want to do on your land in the future when negotiating reserved rights.
Can my children inherit the land? Can I sell or donate it to another person or organization?
The short answer is yes, you can sell or donate the conserved land, either to members of your family, another person who is interested in owning conservation land or you may sell or donate it to a conservation oriented group like Ducks Unlimited or QDMA. The rights and restrictions of the conservation easement go along with the sale or gift, so the next owner must agree to follow the restrictions of the easement when they purchase the land. They also are able to enjoy the reserved rights that have been granted in the easement, such as hunting or fishing.
What governmental approvals are needed for an easement?
The Federal government generally likes conservation easements. Easements are one of the few subjects that receive enthusiastic bipartisan support. Congress came up with this program in 1976 as a way to provide an economic incentive for private land holders to preserve land with valuable conservation attributes. The Internal Revenue Code provides Section 170(h), which grants tax deductions equal to the potential ‘highest and best use’ that could be accomplished on the land, if the land qualifies for an easement overseen by a ‘qualified land trust or governmental agency.’ The land trust is a non-profit conservation organization that will agree to accept qualified lands and monitor their compliance to the agreement for all future times. The land trust must meet and maintain rigid governmental standards to operate as a ‘qualified land trust.’ There are many different land trusts operating in the US at this time. You may be familiar with some of the larger ones, like The Nature Conservancy or North American Land Trust, but there are often smaller land trusts that work in local areas. It is a good idea to do research and talk to other land owners and conservation professionals to find out what it’s like to work with a certain land trust. Following the execution of the Deed of Conservation Easement, the land owner must submit certain forms to the IRS to register the easement and qualify to receive and Federal tax deductions they are entitled to as the result of their charitable contribution. Remember, it’s the restrictions that are being donated, not the land itself.
Can I hunt and fish on my property?
It is important to remember that the main focus of a conservation easement is to preserve and maintain a healthy natural environment, and that includes wildlife management and good forestry practices. Most conservation easements allow for a number of reserved rights to be held by the owner, to be implemented at a time of their choosing. Reserved rights often include the right to hunt, fish, trap or harvest wildlife, to maintain timber and forestry rights, to grow and harvest agriculture and to perform maintenance on the land (such as erosion control) and possibly to even construct a residential home or other buildings if the land mass is large enough. The ability to enjoy recreational aspects of the land and to conduct educational and scientific studies, or to provide alternate energy are common reserved rights as well. Each land trust will work with the owner to decide what the most important rights are and to preserve the owner’s ability to use and enjoy their land.
Did you say “tax benefits”?
Because the economic benefits of private land conservation efforts are primarily realized through tax deductions, those participating in qualified land conservation efforts are essentially self-directing their tax dollars into meaningful permanent land conservation that enhances world-wide environmental stability. According to the IRS Code, qualified easements are able to claim a ‘charitable deduction’ equal to the ‘Highest and Best Use’ potential of any development they might have done if they hadn’t conserved the land. The Highest and Best Use is determined by a ‘qualified appraiser’, a professional appraiser who has been trained to estimate the potential value of a property if it were developed. These highly trained professionals will visit your property and determine its potential value. Using this appraisal, the owner can qualify for substantial tax deductions. Let’s say you have 1,000 acres of hunting and fishing land just north of a major urban area, just beyond the suburbs. Ordinary land sales might bring you 2 million dollars if you could sell it for $2,000 per acre. However, an appraiser might research the area, your local development laws and the market for developments in region, and decide that it could be feasible to build a residential community on your 1,000 acres that would be worth $10,000 per acre. That appraisal would bring you a contribution value of roughly $10,000,000! The land owner is essentially being compensated for giving up their right to develop the land into a commercial residential community, because that is the ‘highest and best use’, or the activity that would feasibly bring the most profit to the land owner. The land owner may use those deductions to reduce their Adjusted Gross Income from any source, by up to 30% (60% for full time farmers and ranchers). Any deductions not used in the first year may be carried over to the next year’s tax return for up to five years in total. In the past, the deductions could be used to cover 50% of AGI and the carryover was available for up to fifteen years. Congress is currently considering reinstating the 50% /15 year scenario, and would like to make the change a permanent part of the program. It should be noted that the IRS does scrutinize most easements and overvaluation on the part of the appraiser can lead to some of the deductions being reduced as well as penalties for the appraiser who submitted the valuation.
What’s the difference between a Land Donation and a Conservation Easement?
Sometimes a land owner may want to donate their land to a charitable group like Trout Unlimited or QDMA as a special gift. The difference between placing an easement on a property and donating the property outright is in the appraisal of the land. If land is simply donated to a qualified non-profit group, the tax deduction allowed to the owner can only be based on comparable raw land sales, and not on the Highest and Best Use method, which allows a deduction based on the property’s potential use. The best way for an owner to maximize their reward is to place a conservation easement on the property, receive the tax benefits from the conservation easement, and at a later date, donate the land to the non-profit organization. These are the sort of strategies that a conservation easement consultant can help provide.
What is a conservation easement consultant and how can they help?
When using an easement consulting company, try to find a company that is a landowner advocate. The company should be very familiar with the tax code, current acceptable legal and tax standards for easements, and how appraisals work in your area. They should also be able to research and recommend legal counsel to oversee your ownership structure, a qualified and trustworthy appraiser, any land trusts that might be interested in overseeing your easement, and a qualified accountant that can prepare your tax documents and qualify your gift for a charitable deduction. A consultant should be able to help the owner decide what reserved rights they will keep when negotiating with a land trust. The consultants should also be able to help you understand all of the IRS forms needed to qualify for a charitable deduction and assist in their preparation. Choosing a reputable, dependable consultant can guarantee a landowner the peace of mind that they have completed the easement process legally and with the most benefit to the owner.
Tell us what you think in the comments section below.
Brian Sullivan is a project manager at Forever Forests, LLC in Ball Ground, GA. Brian became familiar with conservation easements in 2010 when he used Forever Forests as a consultant to place an easement on his 50 acres of land in the North Georgia Mountains. He later joined the Forever Forests team and has been working there since 2013. Brian is happy to discuss your property’s potential with you. He can be contacted by email by writing to bsullivan@foreverforests.net or call Forever Forests office at (770) 345-9457.
Forever Forests, LLC is a conservation consulting company that has been a pioneer in the field of conservation easements since its inception in 2002. They have generated millions of dollars in tax savings and have helped conserve thousands of acres of prime wildlife habitat. Their website can be viewed at foreverforests.net. They can be reached by phone at 770-345-9457.
Tell us what you think in the comments section below.
