A land trust is a nonprofit organization that, as all or part of its mission, actively works to conserve private lands by undertaking or assisting in land or easement acquisitions, or by engaging in the stewardship of such land or easements. These trusts may receive land and easements in donation, or can purchase them at fair market or lower value.
Of the tools for conserving private land, conservation easements are frequently best suited to the task. Easements are increasingly being used to shape and manage growth, protect working farms and forests, and help define community character. Conservation easements are the tool of choice for land protection purposes for a variety of reasons. Chief among these is that, under an easement, the land stays in private ownership and on the tax rolls but the easement’s restrictions ensure that the important conservation values are protected in perpetuity. Other reasons are the inherent flexibility to tailor an easement for a particular landscape and particular purposes, the relative cost of easement acquisition compared to outright purchase, and the possible tax benefits to the landowner. The remainder of this article provides a brief overview of conservation easements in general, the process of easement design and stewardship, and possible tax benefits to the landowner.
A conservation easement is a voluntary legal agreement between a landowner and an eligible organization created to protect certain natural and traditional values of the property in perpetuity. Land placed into a conservation easement still belongs to the landowner, who may continue to live on and manage the land consistent with the values that the conservation easement seeks to protect. The eligible organization/easement holder’s role is to ensure that the mutually agreed-upon terms and conditions of the easement are honored over time.
To repeat a familiar analogy, ownership of land includes a bundle of rights. The rights given, sold, or otherwise transferred by the landowner to the easement holder could include the right to construct buildings, subdivide the land, graze in riparian areas, or clear-cut timber. The landowner retains those rights that have not been deeded to the easement holder. Land protected by a conservation easement may be sold, bequeathed, or transferred like any other property. The easement is permanently recorded with the deed and remains with the land regardless of future ownership.
Public agencies, Indian tribes, and nonprofit corporations, typically land trusts, can hold conservation easements. If an easement donor wishes to claim an income tax deduction for the value of the conservation easement donation, he or she must donate (or sell at a bargain price) the easement to a governmental unit or an IRC § 501(c)(3) organization. The monetary value of a conservation easement is the fair market value of those property rights and restrictions conveyed by a landowner to a land trust. An appraisal estimates the value of those rights by calculating the impact of the easement on the value of the protected property. The appraisal may have several uses. For charitable contribution purposes, the appraised value of the easement is used to determine the amount of the income tax deduction. In this case, the appraisal procedure and report must conform to specific IRS standards. See Treasury Regulations §§ 1.170A-13(c) and 1.170A-14(h) for more detail. The value of the property for purposes of calculating the contribution is its fair market value, not the landowner’s basis in the property.
Properties protected by an easement are primarily those with significant conservation values. Lands under easement range in size from a half-acre community garden to thousand-acre ranches, and include tracts with forests, wetlands, farms and ranches, wildlife habitat, scenic areas, and historic and cultural lands. Most land trusts have guidelines for targeting lands to protect and will evaluate proposed easement projects under those guidelines to determine which properties best mesh with organizational goals. A first step in evaluating a project and in developing an appropriate easement is an assessment of the property’s conservation or preservation values. An inventory of the property’s important resources will help the easement drafter to tailor restrictions to properly protect these resources. When the easement holder accepts an easement, it accepts responsibility for enforcing the restrictions set forth in the easement document in perpetuity. It also accepts responsibility to partner with the landowner to provide stewardship, responsible resource management, of the land. Typically landowners provide a cash donation to a “stewardship fund” for ongoing management of the easement. In other instances, stewardship dollars come from outside sources.
There are possible tax benefits associated with easement donations, and potential easement donors should seek the advice of legal and tax counsel to determine the possible income, estate, and property tax benefits of an easement donation. The donation of a conservation easement, or the bargain sale of an easement, may be a tax-deductible charitable gift, as long as it meets IRC requirements. The value of an estate is reduced by the value of the easement, such that estate taxes are imposed only on the restricted value of land passed to heirs. Because property taxes are based on the assessed value of the property, an easement, by restricting allowable uses, usually reduces the assessed value, and may reduce property taxes as well.
Nancy (Ned) Duhnkrack is a staff attorney for the Ninth Circuit Court of Appeals & adjunct professor of Environmental and Natural Resources Law at Lewis & Clark Law School. She volunteers for the Wallowa Land Trust, an organization dedicated to protecting the rural nature of Northeast Oregon’s Wallowa Country through voluntary private lands conservation.
Wallowa Land Trust’s mission is to protect the rural nature of the Wallowa Valley and surrounding areas by working cooperatively with private landowners, Indian tribes, local communities and governmental entities. The Trust uses economic and other incentives to help conserve the valley’s natural, historic, cultural and agricultural resources, for the benefit of present and future generations. More on the Wallowa Land Trust can be found at http://www.wallowalandtrust.org .
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