Frequently Asked Questions
At least two and potentially three kinds of tax benefits may be associated with a conservation easement: income tax deductions, reduced estate taxes, and occasionally lower real estate taxes. If a conservation easement satisfies the Internal Revenue Code requirements, the grantor may receive a charitable income tax deduction after the granting of the conservation easement. For income tax purposes this charitable deduction may be used over a period of fifteen years for reducing the grantor’s income tax. For estate tax purposes, the granting of an easement usually results in a lower market value for the property. When an estate settles, the lowered asset value for the property reduces its federal estate tax burden. In regards to property taxes, most properties are taxed at an agricultural rate, so there is little, if any, reduction in property taxes, except in unique cases.
For purposes of a donated easement, an appraisal will determine the value of the property before and after the encumbrance of a conservation easement. The value of the easement is the difference between these two figures. The monetary value of the conservation easement can be used to offset the federal income taxes on other income when a landowner donates the development rights to a nonprofit. Appraisals need to be done with care by a qualified appraiser who is familiar with conservation easements, with local real estate conditions, and with the particular type of land use in question. The IRS will review this document. Purchase of an easement is a market transaction and valued by negotiation between buyer and seller, typically based on an appraisal of the value of the property before and after the encumbrance of a conservation easement.
Any amount. A conservation easement may apply to only a small part of an owner’s land or to all of it, depending upon what the owner wants to protect and whether the conservation values, existing encumbrances, and desired rights and restrictions are acceptable to the monitoring organization. Any property of value for agriculture, forestry, recreation, water resources, and wildlife habitat or for its scenic or historic qualities may be protected by means of a conservation easement. As a practical matter, the smaller the parcel the less likely that it will have significant conservation values that warrant placing a conservation easement on it. The Hill Country Conservancy evaluates each proposed easement on a case-by-case basis.
Yes, a property with a conservation easement can be bought, sold and inherited. However, the conservation easement is tied to the land and binds all present and future owners to its terms and restrictions.
Other than providing the statutory context that identifies conservation easements as real, transferable property rights, these transactions usually occur as private agreements between property owners and qualified, private, non-profit organizations such as The Hill Country Conservancy. The Internal Revenue Service becomes involved if the donor seeks tax and estate benefits for the charitable gift.
The landowner may retain specified development rights in a conservation easement agreement. For example, a conservation easement protecting a farm or ranch can allow construction compatible with agricultural operations as well as changes in crop selection or management practices. A conservation easement can specify the location, size and type of a minimal number of residences or other development on a property.
For the donation to qualify for income and/or estate tax benefits, the conservation easement must be perpetual and apply to all future owners. Some organizations, however, in rare cases may be willing to accept or purchase conservation easements that are designed for a period of years.
No. Landowners retain control of access to their property. They may choose to allow access to specific groups or the general public in their conservation easement agreement but are not required to do so, other than access that is required to allow the monitoring of the property by the organization that holds the easement.
Because conservation easements qualifying under IRS regulations are designed to be permanent, landowners should assume that it would not be possible to revoke an easement. Conservation easements occur only under the most special circumstances, under close legal scrutiny to ensure that there is no private benefit or negative impact to the IRS recognized “conservation values” on the property.
In order for a donated conservation easement to qualify for an income tax deduction, the landowner must acquire a mortgage subordination agreement from the mortgage holder, often a bank. With this document, the mortgage holder agrees to follow the terms of the conservation easement in the event of foreclosure.
After signing a conservation easement, the land trust and the landowner begin a working partnership to assure that the intended conservation objectives become a reality. Landowners continue to make all of their own property management decisions. The easement limits only those activities, such as subdivision, commercial development, and surface mining, specified in the agreement. A land steward from the Hill Country Conservancy will schedule annual monitoring visits to the property. These occasions provide an opportunity to answer questions or respond to concerns, and provide technical resources.
A conservation easement may reduce estate taxes paid by heirs. Future landowners, including family members, will abide by the terms of the conservation easement agreement and will continue the relationship with the organization that “holds” the easement. Families should consider the trade-off between immediate tax benefits resulting from reduced property value and permanent restrictions on land use. Professional assistance is available and recommended for families considering this evaluation.
No. To qualify as a charitable contribution, conservation easement donations must:
- be perpetual
- be donated to a qualified organization (a nonprofit land trust or public agency)
- meet one of the “conservation purposes” tests outlined in the Internal Revenue Code
The Internal Revenue Service Code Section 170(h) requires that conservation easement donations meet one or more of the following conservation purposes:
- protects relatively natural habitats of fish, wildlife or plants;
- preserves open space – including farms ranches or forests – either for scenic enjoyment or in keeping with a clearly delineated public policy;
- preserves land for public outdoor recreation or education; or
- preserves historically important land or certified historic structures
Conservation easements are designed to meet the site-specific needs of the individual landowner and land trust. They may not, however, be appropriate for every situation. Landowners considering an easement should consult with family members, professional tax and legal advisors, and a land trust representative such as Hill Country Conservancy, to determine whether this tool will help accomplish a landowner’s long-term conservation and economic goals.
All owners of a property must agree to the terms of the conservation easement before it can be recorded.
This is a complicated issue that should be discussed with professional advisors. However, a landowner who does not own the mineral rights to his or her property can qualify for income or estate tax benefits if:
- ownership of the mineral rights has been separated from the land and remains separated today; and
- the owner proves that the probability of surface mining occurring on the property is “so remote as to be negligible.”
Yes. The landowner should contact the intended easement holder before conveying the easement by will to ensure that the organization will accept the donation and that it meets their mission and criteria. If the easement qualifies under federal tax law, its value is subtracted from the landowner’s taxable estate, reducing estate taxes for heirs. Also under Federal law, the executor or heirs of an estate can donate a qualified easement after the death of the landowner, even if the landowner’s will does not donate an easement. A landowner who might want their executor or heirs to be able to make this donation should clarify the intent on this matter by stating in their will that the executor or heirs have this power.
Conservation easements are recognized for legal and tax purposes by the State of Texas (Chapter 183, Texas Natural Resources Code) and the Internal Revenue Service (Internal Revenue Code, Section 170(h)). Before initiating a conservation easement agreement, landowners should consult with their legal and tax advisors.
Thanks to Texas Parks and Wildlife Department, the Palmer Foundation Land Trust in Colorado, and David Braun for assistance in preparing this information.