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What is a conservation easement?
A
conservation easement is a voluntary legal agreement that
benefits landowners and the community because it protects
land while leaving it in private ownership. Conservation
easements limit the uses of property to those consistent
with the landowner’s and the easement holder’s conservation
objectives.
The
benefits of a conservation easement to landowners include:
Ø
protecting features
of their property that they wish to preserve;
Ø
potentially
receiving significant tax relief that sometimes help keep family land in
the family; and
Ø
maintaining private
ownership of the land.
The community
benefits because the easement protects and conserves natural resources
such as water and unique lands.
Each conservation
easement is unique and negotiated between the landowner and the easement
holder. The landowner retains the property’s ownership and use, while
giving up certain rights in part or in full, such as the right to cut
trees and develop a riparian buffer area. Conservation easements do not
remove land from property tax rolls, but can sometimes reduce the amount
of property taxes paid.
To qualify as a
charitable contribution for federal and state income tax purposes, an
easement must be perpetual and made to a qualified grantee (a nonprofit
organization or public agency) for the public benefit. The easement
must meet one or more of the following conservation purposes:
Ø
protection of relatively natural habitats of fish, wildlife or plants;
Ø
preservation of
land for public outdoor recreation or education;
Ø
preservation of
historically important land or buildings or other conservation purpose;
Ø
scenic enjoyment of
the general public.
Conservation easements can protect family farms, coastal beaches,
mountaintops, river corridors, working forests, undeveloped scenic land
and habitats of many animals and plants, and may include other community
benefits.
Facts about conservation easements...
Ø The
landowner retains ownership, and in the case of farmland or other
productive land, usually continues using the land for farming or
forestry.
Ø The
land provides benefits to society by conserving open lands, farms,
forests and other natural resources.
Ø If
reserved rights limit development, property taxes can be
significantly reduced on the land included in the easement.
Ø
Conservation
easements are individually tailored. Some allow for limited land
subdivision, selective timbering, agricultural use, hunting and
fishing and limited construction of homes or other buildings.
Others are more restrictive.
Ø Landowners
can restrict public access to land. The conservation easement
holder arranges with the landowner to visit the property, usually
once a year, to document that the land is being protected as agreed.
What
economic benefits
may I gain from a conservation easement?
There
are several economic benefits of
placing a conservation easement on your property. Some of these
benefits are listed below. You are advised to consult an attorney
and a financial advisor/estate planner concerning about tax
benefits.
North Carolina Income
Tax Credits
The
landowner may apply for a state conservation tax credit on lands put
under easement. A landowner may receive a tax credit up to 25
percent of the value of the donated interest in the land (up to a
maximum credit of $250,000 for individuals and $500,000 for
corporations). The credit may be carried for five succeeding years
on their state income taxes until it is used up.2
A landowner
may claim a federal tax deduction dedicating a conservation easement
on his/her land. The value of the easement is considered a
charitable contribution that may be deducted from federal income
taxes by attaching a Form 8283 to an income tax return. The federal
tax deduction can be used against 30 percent of the landowners
adjusted gross income3 that may
be used for six consecutive years (until the value of the easement
is used up).4
Landowners may
also use the value of the donated conservation easement against
their estate taxes.5 For estates
valued at more that $650,000 (for 1999) where land is the major
asset, this tax deduction can lead to a major reduction or
elimination of estate taxes.6
Additional
estate tax savings provisions are available under I.R.C. 2031(c)
that afford additional tax relief with land under conservation
easements (up to $200,000 for 1999). See your accountant for more
details.
County Tax Reductions
Although every
county has a different taxing system, some county property tax
relief may be expected for the portion of land under conservation
easement. The conservation from open land to forest in perpetuity
may reduce the taxable fair market value of the land. Each person
should contact his or her local tax office for more details.
Endnotes
2
N.C.G.S. 105-151.12 and G.S. 105-130.34
3 26 U.S.C.
170(b)(1)(C)(1)
4 26 U.S.C.
170(b)(1)(C)(1)
5 26 U.S.C.
170(b)(1)(C)(1)
6 How to
profit from the Taxpayer Relief Act of 1997.
1997 Investor's Specturm Vol. 19(9):4.
This document is based on two
publications about Conservation Easements published by the French
Broad Training Center of the NCSU Water Quality Group and the NC
Wetlands Restoration Program.
For more
information about conservation easements held by the local Soil &
Water Conservation Districts in the upper Hiwassee River watershed,
contact us.
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