Lower Merion Conservancy

Conservation Easements

A Conservation easement is an excellent tool for permanently protecting your land while retaining ownership. The easement is a legally-binding agreement between a landowner and a qualified conservation organization such as a land trust or goverment agency such as a township. The easement permanently limits a property's use and binds all present and future owners of the land.

A conservation easement reduces the market value of the land because the owner gives up the potential for full development. Easements are most often donated by the landowner and the donation may result in a charitable deduction for federal income tax purposes. Sometimes, though, easements are purchased by land trusts or a local or county open space program. In either case, the conservation easement may also reduce estate taxes--because the land will be valued at less than fair market value upon the owner's death--and, depending on local laws, lower property taxes. Indeed, without these reductions in estate and property taxes, the landowner's heirs may not be able to afford to keep the land in the family.

The explanations and examples below represent only the most common uses of conservation easements--there may be variations or ways to use an easement in combination with other conservation techniques that better meet your goals. The Lower Merion Conservancy does not offer legal of financial consultation. We present the information below for illustrative purposes only. Please speak to your personal advisors before engaging in any conservation transaction.

Donating and Easement

When a landowner donates an easement, she or he may be eligible for a charitable deduction equal to the amount of reduction in the land’s value. A qualified appraiser determines the amount of the reduction.

Example: Owners of a 50-acre, unprotected property worth $500,000 decide to place an easement on the property and donate it to a land trust. A qualified appraiser determines that the land’s fair market value, once the potential for development is removed, is $200,000. The owners would then be entitled to a federal income tax deduction of $300,000 (the value of the easement) resulting in a savings of approximately $117,000 (assuming a 39% tax rate). The land may also be assessed at the lower value for property and estate taxes.

Selling an Easement

A landowner may also sell an easement to a qualified organization or government agency. This produces no charitable deduction if the easement is sold for its full value and may give rise to federal income tax obligations for either capital gains or ordinary income tax.

Example: A family owns a 50-acre property that is worth $500,000. A local watershed group wishes to protect this land so they offer to purchase an easement on the land. The landowner sells the easement for $300,000, reducing the value to $200,000. Depending on how long the sellers have owned the property and how much they paid for it, they will be responsible for taxes on a portion of the $3000,000 they receive for the easement. However, the owner’s estate and property taxes may still be reduced because the market value of the property has been decreased by the conservation easement.

Donating an Easement Via Your Will or Living Trust

An easement may be donated to either a qualified conservation organization or government agency by will or living trust. Such a bequest would generate a charitable deduction for the estate of the person making the bequest.

Example: A widow wants to ensure that the 50-acre farm she shared with her husband remains open space. None of her children want to move back to the land, so she decides to donate, via her will, an easement to her township’s open space program. The land’s fair market value upon her death is $500,000. The easement reduces the value of the property to $200,000. Her estate receives a charitable deduction of $300,000 (the easement value) which may result in a tax savings of as much as $165,000.

Monitoring the Easement/Costs of Recording the Easement

Once a qualified organization holds the conservation easement, it is obligated to monitor the land on a regular basis to ensure that the easement is being upheld and to enforce it if it is violated. When picking a recipient organization, it is important that you choose a group that has the capacity and skills to fulfill this obligation now and in the future. The ongoing cost of monitoring is frequently covered by establishing a modest endowment.

There are other costs involved in creating and implementing a conservation easement. A conservation planner must assess the property so that important natural features can be identified. (this process is called a baseline study.) Then, the organization must write and record the easement. Most organizations will ask to be reimbursed for these expenses. Of course, you will also incur expenses when you consult your attorney, financial advisor and an independent appraiser.

Conservation Technique

Retain Ownership?

Live on the Land?

Tax Benefit? *

Income?

Donate an Easement

Yes

Yes

Yes (charitable deduction; estate tax reduction; possible property tax reduction)

No

Sell an Easement

Yes

Yes

No charitable deduction; may result in estate and property tax reductions

Yes

Donate an Easement via Bequest

Yes

Yes

Yes (charitable deduction for estate)

No

* Tax benefits should accrue in most cases; however, your personal financial situation will determine how much, if any, reduction you ultimately receive. Lower Merion Conservancy is not a legal or tax advisor. You will need to speak to your personal advisors.

Updated: 9/22/2006 © 2010Lower Merion Conservancy. All rights reserved.

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