Conservation Easements - An Easy Way to Preserve Land and Save Money

Landowners with acreage to spare may want to look into conservation easements - a move that can preserve valuable land while saving the owner a lot of money.

Conservation easements are donations of undeveloped land - usually a parcel that is worthy of protection due to historic structures, wildlife habitat or agriculture - to non-profit land trusts or government programs. In return for the donation of land, the landowner usually receives federal and, sometimes, state tax credits.

The landowner and the program then agree on a contract placing specific restrictions on the amount of development and public access allowed on the easement. Though the landowner still owns the land, the property is now subject to the agreed-upon restrictions and monitoring outlined in the contract.

For example, in Colorado, the state's Division of Wildlife and the Great Outdoors Colorado Trust Fund run the Colorado Species Conservation Program, which has the goal of preventing further decline of endangered wildlife in Colorado.

Landowners with parcels containing needed habitat for select species, such as the Gunnison sage grouse or the Preble's Meadow jumping mouse, may donate acreage to the program by entering into a contract with the DOW. The contract then governs what can and can't be done on the property as well as whether the donation is a term easement, which lasts for a specified amount of time, or a perpetual easement, which lasts indefinitely.

Giving up a certain amount of freedom isn't without its benefits, though. Under the IRS code, donated conservation easements can be treated as charitable gifts. The value of the easement can then be deducted from federal income tax, up to thirty percent of the donor's adjusted gross income the year the land is donated.

If the easement's value exceeds thirty percent of the donor's income, the excess can be carried forward and deducted at thirty percent each year for the next five years. If the donor is a corporation, only ten percent of the taxable income may be deducted at a time.

And for 2006 and 2007 only, most landowners can deduct up to 50 percent of their adjusted gross income thanks to a tax benefit approved by Congress in August 2006. The change also allows qualifying farmers and ranchers to deduct up to 100 percent of their income, and it also extends the carry-forward period from five to 15 years. Several lawmakers and groups are trying to make these changes permanent, but, for now, they are limited to 2006 and 2007 only.

Certain states also offer income tax benefits for land donors. In Colorado, for example, the first $260,000 of value of a conservation easement is treated as a credit against income taxes. Any portion of that tax credit which is not used in the year of the gift may be carried over and used to off-set Colorado income tax for up to 20 more years. Landowners also have the option of selling the credit to a third-party.

The remainder of the donation - anything over the first $260,000 - may be used as a charitable deduction against the landowner's state income taxes.

Landowners should consult their individual state tax laws to find out what kind of tax benefits are available in their area.

SOURCES:

http://www.lta.org/publicpolicy/tax_incentives_resources.htm

http://www.ccalt.org/CCALT_conservation_easements.htm

www.coloradoconservationtrust.org