A little known provision in the tax code that could bring valuable tax savings is something called a conservation easement. A conservation easement is an agreement that permanently limits the use of land in order to protect its conservation value. In return, the landowner may qualify for valuable tax deductions.
Landowners have found that conservation easements offer a lot of flexibility while still providing a permanent guarantee that the land will not be developed. For instance, an easement on property having rare wildlife could forbid any development, while an easement on farm land could allow continued farming and the building of added agricultural structures. An easement may also apply to only a portion of the property.
In return for the agreement, landowners may receive valuable tax breaks. When the landowner donates the easement to a land trust, it is considered a charitable donation and qualifies for an immediate charitable deduction, even though the landowner continues to use the land. The amount of the donation is determined by the difference between the land’s value with the easement and its value without the easement. Another potential tax break comes from estate tax. By removing the land’s development possibilities, the easement lowers its market value, which then lowers the estate tax.
Although a conservation easement may sound great, there are some drawbacks. Here are some pros and cons of the agreement:
- The person donating the easement gains tax benefits.
- Landowner retains many private property rights such as living, working, using and even selling the land with the easement in place.
- Protects land from future development, can help protect water quality and migration routes.
- Individually tailored to meet a landowner’s needs.
- The cost of the property will be diminished because of the developmental restrictions of the easement. The tax deduction will likely not fully offset the cost. Therefore the landowner must have a true interest in conservation.
- Only certain land qualifies, such as scenic property, farms, waterfront property and large pieces of land.
- Easements alone cannot adequately protect sensitive, rare, threatened or endangered species or ecosystems.
- People who buy land with an easement already on it may not be as keen in honoring the terms of the easement as the original owners, and monitoring is generally not frequent enough to stop violations before the damage is done.
Do you or somebody you know own land that could qualify for conservation easements? We are offering a Lunch and Learn with a speaker from Maryland’s DNR on Monday, June 26th from 12-1:30PM at Severna Park Community Library. Find out more about our event and RSVP here.