1. What is a Conservation Easement?
2. What can be done with property protected by a Conservation Easement?
3. Can a property with a Conservation Easement be developed?
4. How long does a Conservation Easement last?
5. Does the public have access to land protected by a Conservation Easement?
6. What does protecting land with a Conservation Easement do to property taxes?
7. How is the value of the development rights in a Conservation Easement determined?
8. How are the federal income tax benefits of a Conservation Easement calculated?
9. How does a Conservation Easement affect Estate Taxes?
10. Is it possible to donate or sell land in fee simple?
What is a Conservation Easement? A Conservation Easement is a legal agreement reached voluntarily between a landowner and a land trust that protects water quality, wildlife habitat, scenic vistas, agricultural productivity and other conservation values permanently restricts the use of property by current and future landowners keeps property in private hands. Donating some or all of the development rights to a qualified, tax-exempt organization like the North Florida Land Trust (NFLT), and meeting other specific conditions, allows a landowner to be eligible for certain tax benefits. The Easement must be recorded with the county to be effective. The land trust becomes responsible for ensuring that the restrictions are upheld for the length of the Easement, usually in perpetuity. If violations occur, the land trust will work to have them corrected. NFLT occasionally considers the purchase of a Conservation Easement, and offers free, no obligation assistance with local, state and federal programs that purchase Conservation Easements.
What can be done with property protected by a Conservation Easement?
Owners of properties protected by a Conservation Easement must abide by the agreement reached between the owner who signed it and the land trust. All rights to the property not specifically relinquished in the Easement are retained and may be exercised. The landowner owns the land, can live on it and can use it in any way consistent with the Easement and can sell, give or pass on the property to anyone. The landowner is obligated to pay taxes on the property and ensure that the terms of the Easement are not violated.
Can a property with a Conservation Easement be developed?
Some Conservation Easements permit a limited amount of development. If development is allowed, it usually applies only to a portion of the property. Easements are flexible documents that can accommodate sensitive development as long as the property's conservation values are not negatively affected. The Easement can be applied to the landowner's entire property or to only a portion of it, such as the land along the bank of a stream. Each Conservation Easement is designed specifically to address a property's unique characteristics and the interests and needs of the landowner.
How long does a Conservation Easement last?
Most Conservation Easements are perpetual in order to permanently preserve the land. The Easement must be granted in perpetuity if the landowner will be claiming a charitable deduction for federal income tax purposes. Easements may be drafted to be valid for a specific number of years, after which they cease to have any effect. The North Florida Land Trust does not typically draft this type of easement.
Does the public have access to land protected by a Conservation Easement?
The public does not have access to Conservation Easement properties unless specifically authorized in the Easement . Granting public access in the Conservation Easement document at the time of donation is one way to qualify for a federal income tax deduction, but is usually not necessary for the landowner to obtain tax benefits.
What does protecting land with a Conservation Easement do to property taxes?
The property's current assessment for tax purposes determines if tax benefits may be realized by protecting it with a Conservation Easement. If the assessment reflects the property's development potential and those rights have been permanently relinquished, the landowner has standing to make a case to the local assessor for a reduction in property assessment. If that is granted, a property tax reduction will occur.
How is the value of the development rights in a Conservation Easement determined?
The change in property value associated with a Conservation Easement must be determined by a qualified real estate appraiser. The value of the Easement is the difference between the value of the land without the Easement restrictions and the value of the land after the restrictions have been applied and the development rights have been removed. For an Easement donation that qualifies under Internal Revenue Service regulations, this amount is generally the value of the charitable donation. For an Easement sale, this also is the method for determining the payment to be made.
Example: The Smith family conveys a perpetual Conservation Easement on its 80 acre farm to the North Florida Land Trust. If the property's current value is $3,000 an acre, its total fair market value-before the Easement is in place-would be: 80 acres x $3,000/acre = $240,000. If removing the development rights lowers the value to $1,000 an acre, the then total market value of the restricted property would be: 80 acres x $1,000/acre = $80,000. The difference between the before and after values is the value of the Easement: $240,000 - $80,000 = $160,000.
How are the federal income tax benefits of a Conservation Easement calculated?
Under the Internal Revenue Code, qualified Conservation Easement donations may be treated as charitable gifts for federal income tax purposes. The value of the gift can then be deducted at an amount up to 30% of the donor's adjusted gross income (AGI) in the year of the gift. If the easement value exceeds 30% of the donor's income, the excess can be carried forward and deducted (subject to the 30% limit) in each of the five succeeding tax years.
Example: The value of the Smiths' easement, as figured above, is $160,000. If their AGI in the year of the donation is $100,000, they would be able to deduct $30,000 (30% of $100,000) in the first year. Since the value of the easement is greater than their allowable deduction, the Smiths would also be able to deduct $30,000 in each of the next four years (assuming their income stays the same) and deduct $10,000 in the fifth year in order to claim the full amount of the easement donation.
UPDATE - Expanded tax incentives:New expanded tax incentives are available:
• The value of the donation is deductible at an amount up to 50% of the donor's adjusted gross income (AGI) in the year of the gift (increased from the prior limit of 30%.)
• Qualified farmers may deduct up to 100% of their income (increased from the prior limit of 30%).
• If the donated value exceeds the deductible amount in a given year, the excess can be carried forward and deducted (subject to the percentage limit) for up to fifteen succeeding tax years (increased from five years.)
To learn more about these expanded tax incentives, please contact the Land Trust at 904-827-9870.
For Easement sales, the Internal Revenue Service treats the income derived as a capital gain. For most taxpayers, the applicable tax rate is 20% of the payment received. Landowners can reduce or defer tax due by purchasing another income-producing asset (such as another parcel of land), or can reduce the tax due by donating a portion of the appraised value.
How does a Conservation Easement affect Estate Taxes?
The donation of a Conservation Easement—whether made during a landowner's life or by bequest—can reduce the value of the estate upon which taxes are calculated. In some cases, the value of an estate after an Easement donation may fall below the lifetime exemption so that taxes are avoided. Good planning is necessary to ensure that heirs of estates that include property receive maximum tax advantages. North Florida Land Trust is helping Estate Planners learn more about the benefits of Conservation Easements by making presentations to local groups.
Is it possible to donate or sell land in fee simple?
Most definitely! In those cases the donors may declare the full market value of the property, determined by a real estate appraiser, as a deduction for federal income tax purposes. These lands are then made accessible to the public for quiet recreational uses such as hiking, birdwatching, cross-country skiing and nature study. NFLT also occasionally considers the purchase of land for a nature preserve.
In addition, individual counties and the State of Florida have funds available for the purchase of lands for public ownership and recreation. NFLT offers free assistance to landowners with properties which those agencies may be interested in acquiring. NFLT and public agencies usually ask the landowner to consider selling at a price below the appraised value to make limited funds go further. Doing so also provides the seller with access to federal income tax benefits from a "bargain sale."
It is also possible to donate property during one's lifetime but reserve the right to live on the property. These arrangements are called "reserved life estates" in which a "remainder interest" is donated to the land trust. This type of donation may also be tax deductible at the time the gift is made.
To learn more about any of these topics, please don't hesitate to contact the North Florida Land Trust office at 904-827-9870 or email info@northfloridalandtrust.org.