Common Questions
What is a conservation easement?
A conservation easement is a legal agreement that restricts the type and amount of development, or certain management practices that may take place on a property. Each easement’s restrictions are tailored to the particular property and to the interests of the individual owner.
To understand the easement concept, think of owning land as holding a bundle of rights. A landowner may sell or give away the whole bundle, or just one or two of those rights. These may include, for example, the right to construct buildings, to subdivide the land, to restrict access, or to harvest timber. To give away certain rights while retaining others, a property owner grants an easement to an appropriate third party.
The specific rights a property owner forgoes when granting a conservation easement are spelled out in the easement document. The owner and the prospective easement holder, called a land trust, identify the rights and restrictions on use that are necessary to protect the property. What can and cannot be done to the property is defined. The owner then conveys the right to enforce those restrictions to an easement holder, such as a public agency or a land trust.
What kind of easements are there?
Easements often are called by different names, according to what they protect. Most people are familiar with easements that protect right-of-ways or access to property across neighboring land. Easements used to preserve the façade and surroundings of historic structures or historic land are called “historic preservation easements.” Conservation easements protect habitat, surface or ground water, aesthetics, rare species, or combinations of these.
Why grant a conservation easement?
People grant conservation easements to protect their land from development or certain types of use while retaining ownership. By granting an easement in perpetuity, the owner can be assured that resource values will be protected forever, no matter who assumes ownership of the property. Because easements restrict management or development options, they usually reduce the market value of property. This loss of value, at least with conservation easements, may be claimed as a tax benefit because it is the public that gains from the protection of conservation, scenic or historic values.
What kind of property can be protected by an easement?
Any property with significant conservation values can be protected by a conservation easement. This includes forests, wetlands, scenic areas, historic areas, and mixed-use land that includes agriculture and combinations of other habitat. Land conservationists will evaluate the distinctive features of your property. You and the land trust will then determine which resource values merit protection through restrictions identified in the easement. Any property with significant conservation or open-space value may be the subject of an easement.
Who can grant an easement?
If the property belongs to more than one person, all owners must consent to granting an easement. If the property is mortgaged, the owner must obtain an agreement from the lender to subordinate its interest to those of the easement holder, so that the easement cannot be extinguished in the event of foreclosure.
To whom may the property owner grant an easement?
If an easement donor wishes to claim tax benefits for the gift, he or she must donate it, or sell it for less than fair market value to a public agency or to a conservation organization that qualifies as a public charity under Internal Revenue Code Section 501(c)(3). Most land trusts and government agencies meet this criterion. An organization that accepts the donation of an easement will typically ask the owner to make a contribution toward the cost of monitoring and protecting the easement, or will establish a stewardship fund from other sources.
How restrictive is an easement?
An easement restricts development or use to the degree that the owner and land trust deems appropriate to protect the significant values of that particular property. Sometimes, this totally prohibits development. Sometimes it only limits it.
If the goal is to preserve a pristine natural area, for example, an easement may prohibit subdivision and all construction, as well as activities that would alter the land’s present natural condition. If the goal is to protect agricultural land, an easement may only restrict subdivision and development while allowing for structures and activities necessary for and compatible with the agricultural operation. Even the most restrictive easements usually permit landowners to continue all ownership priviledges consistent with restrictions.
What are the grantee's responsibilities?
The grantee organization, or land trust, is responsible for enforcing the restrictions that the easement document spells out. To do this, the grantee monitors the property on a regular basis, typically once a year. Grantee representatives visit the restricted property, usually accompanied by the owner. They determine whether the property remains in the condition prescribed by the easement, and documented at the time of the grant. The grantee maintains written records of the monitoring visits. The visits also serve to keep the grantee and the property owner in touch.
If a monitoring visit reveals that the easement has been violated, the grantee has the legal right to require the owner to correct the violation and restore the property to its condition prior to the violation.
Must an easement allow public access?
Landowners who grant conservation easements make their own choice about whether to open their property to the public. Some landowners convey certain public-access rights, such as allowing fishing or hiking in specified locations, or permitting guided tours. Others may elect to keep their property closed. Some types of easements require access. For example, if the easement is given for recreation or educational purposes, public access is required. For scenic easements, at least some of the property must be visible to the public, but physical access is not necessary. Access generally is not required for easements that protect wildlife or plant habitats, or agricultural lands.
How long does an easement last?
An easement usually is written so that it lasts forever. This is known as a perpetual easement. Where state law allows, an easement may be written for a specified period of years; this is known as a term easement. Only gifts of perpetual easement, however, can qualify a donor for income- and estate-tax benefits. Most land trusts accept only perpetual easements.
An easement runs with the land—that is, the original owner and all subsequent owners are bound by the restrictions of the easement. The easement is recorded at the county or town records office, so that all future owners and lenders will learn about the restrictions when they obtain title reports.
How can donating an easement reduce a property owner's income taxes?
The donation of a conservation easement usually is a tax-deductible charitable gift, provided that the easement is perpetual, and is donated “exclusively for conservation purposes” to a qualified conservation organization or public agency. Internal Revenue Code Section 170(h) generally defines “conservation purposes” to include the following: the preservation of land areas for outdoor recreation by, or the education of, the general public, and the protection of relatively natural habitats of fish, wildlife, or plants, or similar ecosystems, the preservation of open space—including farmland and forest land—for scenic enjoyment and pursuant to an adopted governmental conservation policy.
To determine the value of the easement donation, the property is appraised both at its fair market value without the easement restrictions, and at its fair market value with easement restrictions. The appraisal must be done by a certified appraiser who meets IRS requirements. The difference between the two appraised values is the easement value. Detailed federal regulations govern these appraisals.
As an example: A property has an appraised fair market value of $100,000. Mrs. Price, the landowner, donates a conservation easement to a local land trust. The easement restrictions reduce the property’s appraised market value to $64,000. Thus, the value of her gift of the easement is $36,000. Assuming the easement meets the conservation purposes test, Mrs. Price—like any donor of property—is eligible to deduct an amount equal to 30 percent of her adjusted gross income each year for a number of years [check tax code as the specifics are subject to change], or until the value of the gift has been used up. If Mrs. Price has an annual adjusted gross income of $60,000, she can deduct $18,000 a year (30% x $60,000) until she has used up the $36,000 value. In this case, she will use up the gift in two years (2 x $18,000=$36,000), if her income does not change. Easement donors may qualify for greater savings, especially when state income-tax deductions are applicable. Potential donors should seek legal and tax counsel.
How can granting an easement reduce a property owner's estate tax?
Many heirs to large tracts of open space—agricultural land in particular—face monumental estate taxes, or capital gains taxes. Even if the heirs wish to keep their property in the existing condition, the federal estate tax is levied not on the value of the property for its existing use, but on its fair market value, usually the amount a developer or speculator would pay. The resulting estate tax can be so high that the heirs must sell the property to pay the taxes.
A conservation easement, however, nearly always reduces property value. If the property owner has restricted the property by a perpetual conservation easement before his or her death, the property must be valued in the estate at its restricted value. To the extent that the restricted value is lower, the value of the estate will be less, and the estate will thus be subject to a lower estate tax. (Note that if the property owner donates the easement during his or her lifetime, he or she may also realize income-tax savings.)
Even if a property owner does not want to restrict the property during his or her lifetime, the owner can still specify in his/her will that a charitable gift of a conservation easement be made to a qualifying organization upon the owner’s death. Assuming that the easement is properly structured, the value of the easement gift will be deducted from the estate, reducing the value on which estate taxes are levied. Again, a lower tax results.
Can granting an easement reduce an owner's property tax?
Property tax assessment usually is based on the property’s market value, which reflects the property’s development potential. If a conservation easement reduces the development potential of the property, it may reduce the level of assessment, and the amount of the owner’s property taxes. The actual amount of reduction, if any, depends on many factors. State law, local officials, and assessors influence or determine the decision regarding property tax relief to easement grantors.
How much will an easement cost?
The short answer is, “probably nothing.” The reason is that if you have a qualified conservation easement that NCCT will accept, then you probably can claim all expenses and contributions relating to the easement against your gross income used to determine federal and state taxes. Secondly, in the previous three segments, we describe potential tax savings resulting from reduced property value. It is not unusual for property in Central Wisconsin to be revalued at $30,000-40,000 less as a result of an easement, depending on the location and size of the property. (See “Tax Benefits” in the Land Conservation Options.) You will want to check with your attorney or tax advisor, but in most cases, a property owner ends up saving money with an easement. That said, there are up-front costs in addition to the $500 you gave to NCCT to initiate work on your easement. At closing, you will be asked to pay all attorney and filing costs incurred by NCCT, amounting to $2,500 on average. You will also be asked to make a donation to NCCT’s easement protection and stewardship endowment. Donation amounts vary based on easement characteristics, but typically range from $5,000 to $10,000 Remember that all costs and donations may be able to be claimed when you calculate your taxes. We recommend you consult with legal and accounting professionals.
Source: Diehl, Janet and Thomas S. Barrett, The Conservation Easement Handbook.