Conservation

Point, Counterpoint: The Conservation Easement Tax Incentive

Point, Counterpoint: The Conservation Easement Tax Incentive

An article appeared in Bloomberg News within the last year that highlighted the complexities of the conservation easement tax break. Both the conservation easement and the related tax incentives are sophisticated real estate and tax matters subject to regular debate by landowners, land trusts, and the Internal Revenue Service.

The Bloomberg article describes the conservation program in part as a “complex and obscure tax break that benefits some of the nation’s wealthiest property owners.” Problems can arise when landowners take advantage of the program by securing unreasonably high appraisal values for their properties, upon which the tax break is calculated. Other problems can arise when the various, complex IRS rules are not followed closely. Due to the apparent problems, uncertainty, and possibility of IRS oversight, some are shying away from utilizing the conservation easement.

The other article, a response to the Bloomberg article, appeared on the Land Trust Alliance website. The response notes certain apparent factual errors, including the type of landowner making the donation (8 in 10 are not millionaires) and that the cost of the deduction appeared to be overstated by 400%. It should be noted that the Land Trust Alliance, an advocate for land trusts in the United States, has an inherent bias as much as Bloomberg may have a bias toward economic benefit, namely the Land Trust Alliance wants to see the conservation easement program grow for the benefit of its land trust members.

Although informed minds may differ, what appears consistent is that the conservation easement program – for the land trust, the landowner, and the IRS – continues to be a complex program, with enough uncertainties to cause tension among the various parties. The easements are complicated because, among other reasons, they are perpetual in nature. In order to receive the desired tax treatment, IRS requires landowners to follow a strict guidelines and rules.

The result of these various competing aspects of the conservation easement may have an unintended consequence: property owners look for certainty in their investments and accounting, and if/when conservation easements appear too complex or uncertain as a tax strategy, the property owners may decide it is best just not to avail themselves of the benefit of that tax benefit.

It will be interesting to see how conservation easements continue to evolve between landowners and the IRS.

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About the author

James Moorhead

Jamie Moorhead founded the Moorhead Law Group, LLC in 2012 as a focused, hard-working law firm based in Chicago, with a cost-effective practice that is national in scope. The firm concentrates in three areas: commercial real estate, conservation, and sports law, all on a national basis. Clients have noted the firm’s fair and responsive approach, sound practical advice, and ability to get transactions done on time, on budget, and without surprises.

4 Comments

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  • Conservation easement – You are kidding? Land with a conservation easement is damned near impossible to sell. Anyone who burdens their land with such non sense will regret it. I will not list a property with a conservation easement.

    • Putting an EASEMENT on cropland is a HEX. The value drops dramatically.

      I learned the very hard way and I should have seen it coming.

      Fortunately it was only 40 acres, but the CE cost me 90% of current value of similar

      farmland when it sold. I was told that I was lucky that it sold. No more CEs for me.

    • I will agree with Marvin’s statement. Easement = Residual Disappears.

      Lost $300K on 52 acres of farmland by putting easements on 40 acres of it.

      We tend to forget the element of time, a big mistake.

  • In NY State we find that many of our non resident buyers or absentee land owners look for ways to reduce their tax burden. With NY State coming in with one of the highest tax rates in the US, this is a huge concern for those in the Real Estate Market. The Fed Conservation Easement can be very beneficial to a land owner in both the short and long term. We have sold properties having a substantial amount of wetlands that the owner put into Conservation Easement in order to make substantial improvements to the waterfowl habitat. The Army Corp of Engineers came in, surveyed the land, put in an access road and constructed ponds and canals that provided the owner with a more valuable property and future buyers with additional recreational opportunities. While the owner saved big on his taxes for years, we were able to market and sell the property to those looking for a quality hunting and recreation property. However, any time an owner encumbers their property, they take the risk of devaluing the property. For example, the NYS 480-A Forestry Program may not be beneficial to a landowner having a good hardwood stand that can produce a healthy income from regular management cuts. The monetary benefit from the timber harvests often outweigh the tax savings over the long run. Once the property is in the program, there are heavy penalties to get out. Potential buyers look at this type of encumbrance as a negative. We never look at Federal or State Programs as being good or bad, the point is that they serve a purpose and serve well in certain instances. We always coach our buyers into giving careful consideration for their exit strategy when managing their land.

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