The tax benefits of conservation easements help preserve property for future generations. Owners of land and structures with ecological, historical, educational or cultural significance can use their property to secure big income and estate tax breaks. These agreements don’t come with as many restrictions as one might think, but a professional is necessary to get an accurate valuation of the tax benefits of conservation easements and tax deductions.
How to Establish a Conservation Easement
To set up a conservation easement, property owners need to contact government agencies or charitable land trusts that cover the region. They donate the property rights of their land or buildings to the tax-exempt agency or organization. Then an evaluator determines the difference in value for the land with the development restrictions in place.
Tax Benefits of Conservation Easements
The owners can claim the deduction amount over a period of up to 16 years. Agriculture professionals and other owners can use the deduction to cover 100 percent of their income tax, while others have a 50 percent restriction.
Establishing a conservation easement has a significant impact on estate taxes as well. The value of the easement gets subtracted from the estate’s value, sometimes having a pleasantly surprising impact on the amount of tax due.
The easement may or may not affect property tax, depending on the land’s current use.
Property owners need a professional evaluation performed by a reputable service to get a fair value – one that is acceptable to the Internal Revenue Service. In states like Georgia, the federal government is not the only entity offering these tax benefits. The Georgia state revenue service offers property owners deductions for conservation easements as well.
Selecting a reputable land trust is essential if the property owners want to keep the donation intact and undeveloped. However, to ensure it stays protected, extra diligence is necessary. Some trusts will transfer development rights to government agencies, which then use the land for unintended purposes. A little homework and carefully going over the easement contract can prevent such incidents.
The IRS warns property owners against working with companies that promise to boost the value of a donation higher than its worth. Claiming an inflated deduction is a violation of tax law. It puts owners at risk for fines, interest on underpaid taxes and possible criminal prosecution. Working with a trustworthy professional is key to taking advantage of these tax benefits of conservation easements legally.
Restrictions That Come with a Conservation Easement
At its core, a conservation easement protects land and existing structures from falling victim to modern development. It does not prevent a farmer from selling or planting or changing the types of crops or livestock raised on the property. It won’t keep owners from making necessary renovations to structures or putting up new ones, for the most part.
The easement simply restricts certain types of renovation or new builds from occurring. These blocks of land will never be home to Walmarts or low-income apartments. A building with historical importance might need to have its exterior or various elements of its construction preserved and protected during renovations too.
That said, Uncle Sam is a big fan of regulations. Knowing that immediately puts some farmers and ranchers off the idea. They don’t want anyone telling them, or their children, how to earn a living. And for good reason: they might fear the well-intentioned advice of government experts might run them out of business. Those feelings were a consideration when creating programs for conservative easements.
According to Executive Director Glen Chown of the Grand Traverse Regional Land Conservancy, misunderstanding is the number one reason property owners opt out of the savings. They miss out on the other benefits as well.
Additional Benefits of Conservation Easements
While there are temporary easements available on the state level, federal conservation easements are permanent agreements that last in perpetuity. The development rights for whatever lands and buildings donated help ensure tracts of land stay together. Combined, the tax savings and the protection for development can help keep a property in the family or keep a small business afloat.
Important buildings – like the rural schoolhouses found scattered among rural properties – can benefit from preservation for historical purposes. This is a much easier path to protecting these places than, say, having a structure placed on the National Historic Register. Landowners won’t have to adhere to the restrictions of a register placement either.
Unfortunately, not every piece of land is available for a conservation easement. Property already protected by local ordinances or enrollment in alternative programs might not have property rights to donate to an organization. Using a professional during the planning stages will help landowners get the most benefits available.
Contact our team of real estate pros at Global Valuation today to start taking advantage of the tax benefits of conservation easements.