A conservation easement is a viable solution for landowners who want to protect their land from development. Simply put, a conservation easement is a restriction on the use of property owned by an individual, similar to a deed restriction. It is recorded in public records and generally is in perpetuity. Landowners who sell conservation easements can control the ownership of the property, while receiving money for the easement. The government receives assurance that valuable land will be protected from future development.
What are the specific benefits to the landowner? Below is a list of eight of the general benefits for considering a conservation easement:
• The landowner maintains control and ownership of the property.
• Each conservation easement is individually structured to meet the needs of the landowner, along with the conservation criteria, and can be structured broadly or specifically.
• The landowner keeps the land and receives payment for the appreciated value caused by development pressure.
• The landowner assures the property is protected for future generations
• The landowner continues to receive income from his/her land.
• The property may be sold and the restriction travels with the property.
• Future generations are assisted in the transfer of the land by favorable estate tax treatment.
• Landowners may gain income tax advantages.
Most landowners are interested in tax advantages when considering a conservation easement. Landowners may receive income tax advantages that include gifting, tax deferred exchanges, and gains used against the basis value. Tax advantages can also assist in the transfer of property from generation to generation and can lower estate taxes for heirs by maintaining the agricultural classification of the land.
A generational transfer may benefit a landowner by lowering the value of the property for estate tax purposes. This happens because after the rights to develop it are sold, the highest and best use of the land is usually agricultural.
Gifting is a using the conservation easement as a donation to the government or to a qualified conservation organization. Gifting is treated as a charitable contribution and results in lower Federal income tax.
A Tax-deferred Exchange is an option allowed by the IRS for landowners who owe capital gains taxes because of the sale of property. This defers paying the tax by purchasing another piece of property instead of paying the tax. Known by several terms, a tax-deferred exchange is often referred to as a Like-kind Exchange or a 1031 Exchange.
The IRS allows a tax exchange for owners who have a capital gain because of the sale of a conservation easement. In my award-winning booklet, “We Create Solutions for Landowners: A Primer on Conservation Easements,” see case study #1 for an example of how this might work for you.
Gains Used Against Basis includes basis as the amount you paid for the property, plus the value of any capital improvements, less any depreciation claimed. If you sell a conservation easement, the IRS will allow you to reduce your basis by the amount of the conservation easement, which may result in you not paying any capital gains taxes. In my award-winning booklet, “We Create Solutions for Landowners: A Primer on Conservation Easements,” see case study #2 that uses this tax advantage.
To take advantage of a Federal income tax deduction, a conservation easement must be perpetual and given to a specific division of the government or a qualified conservation organization. Annually, the division or organization monitors the property to assure that the easement is not being violated.
For more information on conservation easements; land, commercial, and industrial properties; and land and resource management, please visit www.saundersrealestate.com or call Dean Saunders at 1-877-518-LAND.
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