Preserving the natural beauty of your property: A look at conservation easements
Posted on 05/01/2015 at 03:39 PM by The Newsroom
Do you have an area of farmland that you'd like to preserve while also obtaining a charitable deduction for income or estate tax purposes? Or maybe you have a special piece of property that you can't bear the thought of anyone developing or changing in any major way? For instance, my uncle has an area of timber on his farm with beautiful bluffs and a stream running through it. It's been in my family for about 90 years and is used as a place for cows to graze, for family picnics, and mushroom hunting. I'd hate to see that land change. If either of these situations strike a chord for you, a conservation easement may be right for you.
What Is a Conservation Easement?
Under Iowa law, a conservation easement is a restriction on the use of land that exists to preserve scenic beauty, wildlife habitat, wetlands, or forests; to promote recreation, open space, agriculture, soil or water conservation; or to conserve the land's natural, recreational, or cultural resources for the benefit of the public. Conservation purposes under federal law are similar to those in Iowa:
preserve land for recreation and education of the public;
protect the habitat of fish, wildlife, or plants;
preserve open space (including farmland and forest) that will significantly benefit the public if (1) it is for the scenic enjoyment of the general public, or (2) it furthers a clearly delineated governmental conservation policy.
preserve a historically important land area or certified historic structure.
A restriction to preserve a certified historic structure is often called a 'façade easement.'
What is Required to Qualify as Deductible Easement?
There are a few major requirements to qualify for a charitable deduction under Section 170 (for income tax purposes) or under Section 2055 (for estate tax purposes):
A 'qualified real property interest' (can be a perpetual conservation restriction, including an easement) is given;
To a 'qualified organization' who is an 'eligible donee'; and
The donation is exclusively for conservation purposes (listed above).
A 'qualified real property interest' includes a perpetual conservation restriction, such as an easement. A 'qualified organization' includes most Section 501(c)(3) public charities as well as governmental units and political subdivisions. In order to be an eligible donee, the organization must show a commitment to protecting the conservation purposes of the donation and it must have the resources to enforce restrictions. Example Mr. Zee owns land with native prairie and a log cabin built in 1840. He'd like to preserve the prairie and cabin and ensure that the land will not be developed. Mr. Zee continues to own the property, but he grants a perpetual restrictive easement to the Iowa Conservation Organization (a fictional 501(c)(3) qualifying as an eligible donee). The easement states that no owner of the property may alter the natural prairie or make changes to the cabin. The organization has the power to enforce this restriction. The easement qualifies as a conservation easement for federal and Iowa tax purposes.
What Are the Benefits to the Donor?
Granting a conservation easement has several benefits for the donor. First, the Internal Revenue Code allows a deduction against your income for the fair market value of the easement. Second, because the easement restricts the use of your property, it decreases the value of the property, meaning that the value of your estate is decreased for estate tax purposes. Similar benefits ensue for Iowa income and inheritance tax purposes. Additionally, many people like conservation easements because they can continue to hold the property and are able to sell, gift, or bequeath it as they please. The donation results from the restriction itself. Thus the donor is able to continue to hold and enjoy the natural beauty of the land with the peace of mind that the land will maintain that beauty for generations to come.
The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.
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