There has been so much misconduct regarding conservation easements, that we thought it would be worthwhile to revisit this topic. All of the drama and targeting has been around syndicated conservation easements. These structures are designed to sell interests in a partnership that derives its value from the tax savings of the easement. Needless to say, many of these were aggressive and violated the spirit of the law to say the least.
Since then, Congress has issued a variety of rules to curb this abuse. However, what if you own a piece of property that you truly want to preserve for conservation purposes?
Establishing a non-syndicated conservation easement involves several key steps:
The Process of Establishing a Non-Syndicated Conservation Easement
First, in order to be eligible for a non-syndicated conservation easement, you must have held the property for at least twelve months before placing the easement on it. Syndicated easements have an initial three year holding period which further enforces Congress’s anti-abuse provisions under such structures.
1. Assessing the Property
The first step is to assess the conservation values of your property. This might involve consulting with conservation organizations, ecologists, or land trust representatives to determine the property’s ecological, historical, or scenic significance.
2. Identifying a Qualified Organization
The easement must be granted to a qualified conservation organization, such as a land trust or government entity. These organizations must have the commitment and resources to enforce the easement’s terms in perpetuity.
3. Legal and Financial Considerations
Consulting with legal and financial advisors is crucial to understand the tax implications and ensure that the easement agreement is structured correctly. A qualified appraisal of the property is necessary to determine the value of the easement.
4. Drafting the Easement Agreement
The easement agreement outlines the restrictions on the property and the rights retained by the landowner. This document is tailored to the specific conservation goals and needs of the landowner and the conservation organization.
5. Recording the Easement
Once the easement agreement is finalized and signed, it must be recorded with the local land records office to make it legally binding.
6. Substantiation and Reporting
To claim the tax deduction, landowners must meet specific substantiation requirements, including attaching a completed Form 8283 (Noncash Charitable Contributions) to their tax return and maintaining records of the qualified appraisal.
There are several compelling reasons to consider a non-syndicated conservation easement (one where we are not selling the tax benefits):
1. Preservation of Natural and Historic Heritage
By placing a conservation easement on your property, you can ensure that its natural beauty and ecological significance are protected for future generations. This is particularly important for lands that provide critical wildlife habitats, wetlands, forests, or areas of historical importance.
2. Tax Benefits
One of the primary incentives for landowners to grant conservation easements is the potential for significant tax benefits. The value of the easement, determined by the difference between the property’s fair market value before and after the easement, can be deducted from the landowner’s federal income taxes. The deduction is generally limited to 50% of the taxpayer’s adjusted gross income (AGI), but this limit can increase to 100% for qualified farmers and ranchers. Any excess deduction can be carried forward for up to 15 years.
3. Estate Planning
Conservation easements can play a crucial role in estate planning as well by reducing the value of the land for estate tax purposes. This can make it easier for heirs to keep the property intact without having to sell portions to pay estate taxes. The reduced valuation can also help preserve family lands for future generations.
4. Personal Satisfaction
Many landowners derive deep personal satisfaction from knowing they have made a lasting contribution to conservation. Protecting land from development and preserving its natural or historic values can be a fulfilling legacy to leave behind.
Conclusion
Non-syndicated conservation easements offer a powerful tool for landowners to protect their property’s conservation values while also reaping substantial tax benefits. By understanding the process and benefits, you can make an informed decision about whether a conservation easement is right for you. Protecting land through a conservation easement is not only a strategic financial decision but also a meaningful way to contribute to the preservation of our natural and historic heritage.
Please feel free to contact us to discuss the particular details regarding your property and is a conservation easement is right for you.
