Download Easement Information
Conservation Easements
In order to qualify for a tax deduction as a conservation contribution, the donation must meet several requirements.
Per reg. 26 C.F.R. 1.170A-14(a), the contribution must:
- Constitute a Qualified Real Property Interest.
- Must be made to a Qualified Organization.
- Must be made for "exclusively" for a Conservation Purpose.
Further, the conservation interest must be enforceable in perpetuity, and there must be "donative intent," i.e., no "quid pro quo" is involved.
The land contributed or placed under easement must be considered "capital property" under other sections of the tax code to generate the tax benefits discussed, meaning that:
A. Property that constitutes the holder's stock in trade or inventory will not qualify (developers take note); and
B. The property must have been held for at least one year at the time of contribution.
Mortgages must be subordinated to the conservation easement.
Pursuant to the Internal revenue code § 170(h)(4)(A), Conservation property must meet one or more of the following uses.
Conservation purpose defined:
A. In general, the term "conservation purpose" means—
(i) the preservation of land areas for outdoor recreation by, or the education of, the general public,
(ii) the protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem,
(iii) the preservation of open space (including farmland and forest land) where such preservation is
(I) for the scenic enjoyment of the general public, or
(II) pursuant to a clearly delineated Federal, State, or local governmental conservation policy, and will yield a significant public benefit, or
(iv) the preservation of an historically important land area or a certified historic structure.
Coordination and Facilitation of Conservation Easement Process
Community Open Land Trust will provide comprehensive organization, coordination and facilitation of the conservation easement process and associated documents with
all concerned parties. This process also includes negotiating the terms of the easement with the property owner and preparing the easement.
COMMUNITY OPEN LAND TRUST TO PROVIDE:
- Conservation Easement Document that defines specific limitations on future development and the relinquished rights of the property owner.
- Defines the retained rights of the property owner such as recreation trails, hunting, any structures allowed, etc.
- Draft conservation easement document to Owner's attorney for review
COMMUNITY OPEN LAND TRUST TO PROVIDE:
- Baseline Documentation that states the location of structures, underground utilities, power lines, roads, trails, streams and the condition of property at the time of the easement.
- This document is used by COLT in its annual monitoring visits.
- Onsite baseline survey and the baseline report for signatures at closing.
COMMUNITY OPEN LAND TRUST TO PROVIDE:
- Federal regulations obligate COLT to conduct annual field visits in perpetuity to insure the requirements of the conservation easement are met.
- COLT monitors property on an annual basis through a prearranged visit with the owner.
- COLT uses the Baseline Documentation report for annual monitoring
- After site visit a reporting document will be provided to Owner each year.
PROPERTY OWNER'S ENGINEER/PLANNER TO PROVIDE:
- Environmental Assessment (Phase 1) establishes that no hazardous materials are located on or near the property
- A probable highest and best use development plan for appraisal purposes.
PROPERTY OWNER'S SURVEYOR TO PROVIDE:
- A surveyed plat of the easement property providing metes and bounds prepared, signed and sealed by a licensed Land Surveyor authorized to practice in the State of South Carolina.
- Copy of conservation easement survey to be provided to COLT for baseline survey
- Copy of conservation easement survey to be provided to Owner's attorney for legal description
- Three signed and sealed copies of conservation easement survey to be provided to COLT for records.
PROPERTY OWNER'S APPRAISER TO PROVIDE:
- Appraiser will need a probable highest and best use development plan for appraisal purposes
- The full unabridged appraisal shall be prepared by a licensed Appraiser authorized to practice in the State of South Carolina who is experienced in conservation easement valuations.
- COLT requires a copy of the appraisal for records.
PROPERTY OWNER'S ATTORNEY TO PROVIDE:
- Title Search - for certificates of title. Provides information regarding property ownership and existing encumbrances.
- Subordination Agreement from mortgagor.
- Legal Description - provides legal description of property and the exact boundary of the property covered by the conservation easement.
- Certificate of Title Insurance on conservation easement
- Ensures the Conservation Easement and Baseline Documentation Report are executed by Grantor.
- The Conservation Easement Document is recorded in the county courthouse.
The donation of a conservation easement to a qualified nonprofit organization is a charitable gift, recognized by the IRS, and in most circumstances result in substantial reductions of federal income tax, gift and estate taxes. The State of South Carolina allows the donor to receive state tax credits for the same contribution. Conservation Incentive Act income tax credit ceilings:
a. No. of acres x $250/ac.
b. <25% of federal tax deduction
c. Max. $52,500 credit per year
A landowner (individual and corporations) is eligible for an income tax deduction for the value of a conservation easement that they donate to a qualified nonprofit organization. The value of the conservation easement is equal to the difference in property value before and after it is restricted by the easement as determined by an appraisal. An individual can claim an income tax deduction of up to 30% of their adjusted gross taxable income in one year. Any unused portion of the gift can be carried over for deduction in the succeeding five years. Enhanced benefits that expire on December 31, 2009, allow conservation easement donors to deduct up to 50% of their adjusted gross income in the year of the donation and continue to take deductions for as long as 15 years after the initial deduction.
Another tax savings attributed to a conservation easement is a reduction in property tax. An executor of an estate can elect to exclude from the taxable estate up to 40% of the value of the land subject to an easement. This estate tax reduction is in addition to the reduction in value, which was already attributed to the easement during the land owner's lifetime.
Also, improved property subject to a perpetual easement is classified as agricultural real property and thus is taxed on an assessment equal to 4% of its value rather than the standard 6%.
There are several potential tax considerations that a landowner may wish to consider when contemplating a conservation easement on their property. In every case, the landowner should consult with their attorney or tax advisor in order to fully understand the tax consequences for their own situation.
Back to top
© 2007-2008 Community Open Land Trust. All rights reserved. 