Bedford Citizens for Land Preservation

Summary of Tax Benefits of Conservation Easements

(Information provided by Central Virginia Land Conservancy, 1824 Clayton Avenue, Lynchburg, VA 24503, (434) 384-3785, cvlc2004@yahoo.com). Please consult your attorney and/or accountant for professional advice on the implications for your own tax situation).

1. Federal Income Tax Deduction

The donation of a conservation easement is treated as a charitable gift and the value of the easement (the value of the property pre-easement minus the value of the property post-easement) may be deducted from the donor’s income for purposes of calculating incomes taxes.

Deduction is limited to 30% of the landowner’s adjusted grow income in the year the donation is given (the unused portion of the gift may be carried forward to be used as a deduction for an addition five years, subject to the 30% limit each year.

Alternatively, the landowner may elect to reduce the amount of the deduction to a proportion of the basis of the property. Then the value of the gift (as reduced to basis) will be deductible up to 50% of the landowner’s adjusted gross income (for one plus five years). This election may be advantageous to the landowner if the donation of an easement is made shortly after acquiring the property. In fact, if the property has been held for less than one year the donor is required to use this method.

2. Virginia State Income Tax Credit

An income tax credit allows easement donors to claim a credit against their Virginia State income tax liability of up to 50% of the value of the donated easement.

The credit is capped by a $100,000 annual limitation and any unused credit may be carried forward for an additional five years.

Starting in 2002, any unused credit may be transferred (i.e. sold) for use by another taxpayer. For example, a landowner who pays $10,000 in state income tax each year donates an easement worth $500,000, and thus has a credit of $250,000. The landowner can use the tax credit to offset $60,000 in income taxes ($10,000 each year for 6 years). With this law, the landowner can also sell the remaining $190,000 in credits to another taxpayer (albeit at a discount.)

3. Estate tax reduction

Estate taxes can be as high as 55% of the value of the donor’s estate. In many cases, a landowner’s heirs must sell the property just in order to pay estate taxes. By donating an easement, landowners can reduce these taxes in two ways:
1. The estate will have been reduced by the value of the easement (smaller estate value means less – or perhaps no – estate tax due).
2. The American Farm and Ranch Protection Act of 1997 allows heirs to exclude up to an additional 40% of the remaining value of their land from estate taxes.

4. Reduced real estate taxes

In localities where “use value” taxation is in place, land subject to an easement is automatically entitled to taxation at use value rates. In localities that do not have use value taxation, land under easement is required to be assessed without regard to the development value that has been extinguished by the easement.

Click on A Hypothetical Case Study to examine the value of federal and state income tax deductions and tax credits for a hypothetical easement donation.

To learn more about tax advantages and options, consult A Simplified Guide to the Tax Benefits of Donating a Conservation Easement by C. Timothy Lindstrom, which is available for review on BCLP's Resource Cart at the Bedford Public Library's Central Branch in Bedford.

For additional information on Conservation Easements contact the Western Virginia Land Trust and their website

David C. Perry
Project Manager
Western Virginia Land Trust
722 First St., SW, Suite L
Roanoke, VA 24016-4120
Phone/fax (540) 985-0000
www.westernvirginialandtrust.org
"Promoting the conservation of western Virginia's natural resources --
farms, forests, waterways, and rural landscapes."

If you would like a lot more information about the above, it is suggested you download a complete copy of all 20 of the Grass Roots articles. It is the best way of getting educated on the issues and options available. You may download them as a PDF and than print out the document on your printer.
Click on the following link

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What is a Conservation Easement? A conservation easement is a way a landowner may limit the kinds of uses of his/her land. In return, the landowner receives various financial benefits, which could include an outright payment or tax deductions for the value of the uses given up. The land in question then may even enjoy lower estate and real estate taxes. In essence, the landowner sells a use of the land, while retaining all other rights to the property. For example, a farmer could limit the use of his land to farming, and sell or convey the right to other uses, such as high-density development. The farm is then available for farming but not for development. Similarly, a landowner could limit the use of his/her property for conservation purposes. Conservation easements are usually given to a non-profit, charitable land conservation organization or a public entity. Conservation easements may be donated or sold. When they are transferred by sale the transaction is referred to as the Purchase of Development Rights (PDR). For example, five hundred acres of farmland along U.S. 221 in Bedford County will not be developed because the families who own it have sold the development rights to their land via a conservation easement to the Virginia Outdoors Foundation (VOF). Nearly 3,000 acres in the counties immediately surrounding Lynchburg are under conservation easements with VOF, a state agency established by the General Assembly to hold easements in public trust. Other qualified non-profit conservation organizations, such as the James River Association, may also hold these easements. Easements can be tailored to meet the owner's wishes regarding the future use of his/her land. Typically a conservation easement restricts development or uses that would destroy natural, scenic, or historic resources, while allowing other traditional uses, such as farming and forestry. When property owners enter conservation easements, they are forever restricting their land to minimal development, usually about two houses per 100 acres for larger tracts. Easements do not mean the public can go on the land for hiking or hunting. The land is still private and can be sold. When it is, the conservation easement is sold with it. Many people donate easements because of their love of the land and their desire to see it protected in perpetuity. As noted above, there are also significant tax advantages associated with an easement donation. An easement can be a critical element in estate planning, significantly reducing estate taxes and preventing the forced sale of property to pay estate taxes. There are also income tax and property tax savings associated with the donation of easements. Summary of Tax Benefits of Conservation Easements (Information provided by Central Virginia Land Conservancy, 1824 Clayton Avenue, Lynchburg, VA 24503, (434) 384-3785, cvlc2004@yahoo.com). Please consult your attorney and/or accountant for professional advice on the implications for your own tax situation). 1. Federal Income Tax Deduction The donation of a conservation easement is treated as a charitable gift and the value of the easement (the value of the property pre-easement minus the value of the property post-easement) may be deducted from the donor’s income for purposes of calculating incomes taxes. Deduction is limited to 30% of the landowner’s adjusted grow income in the year the donation is given (the unused portion of the gift may be carried forward to be used as a deduction for an addition five years, subject to the 30% limit each year. Alternatively, the landowner may elect to reduce the amount of the deduction to a proportion of the basis of the property. Then the value of the gift (as reduced to basis) will be deductible up to 50% of the landowner’s adjusted gross income (for one plus five years). This election may be advantageous to the landowner if the donation of an easement is made shortly after acquiring the property. In fact, if the property has been held for less than one year the donor is required to use this method. 2. Virginia State Income Tax Credit An income tax credit allows easement donors to claim a credit against their Virginia State income tax liability of up to 50% of the value of the donated easement. The credit is capped by a $100,000 annual limitation and any unused credit may be carried forward for an additional five years. Starting in 2002, any unused credit may be transferred (i.e. sold) for use by another taxpayer. For example, a landowner who pays $10,000 in state income tax each year donates an easement worth $500,000, and thus has a credit of $250,000. The landowner can use the tax credit to offset $60,000 in income taxes ($10,000 each year for 6 years). With this law, the landowner can also sell the remaining $190,000 in credits to another taxpayer (albeit at a discount.) 3. Estate tax reduction Estate taxes can be as high as 55% of the value of the donor’s estate. In many cases, a landowner’s heirs must sell the property just in order to pay estate taxes. By donating an easement, landowners can reduce these taxes in two ways: 1. The estate will have been reduced by the value of the easement (smaller estate value means less – or perhaps no – estate tax due). 2. The American Farm and Ranch Protection Act of 1997 allows heirs to exclude up to an additional 40% of the remaining value of their land from estate taxes. 4. Reduced real estate taxes In localities where “use value” taxation is in place, land subject to an easement is automatically entitled to taxation at use value rates. In localities that do not have use value taxation, land under easement is required to be assessed without regard to the development value that has been extinguished by the easement. Click on A Hypothetical Case Study to examine the value of federal and state income tax deductions and tax credits for a hypothetical easement donation. To learn more about tax advantages and options, consult A Simplified Guide to the Tax Benefits of Donating a Conservation Easement by C. Timothy Lindstrom, which is available for review on BCLP's Resource Cart at the Bedford Public Library's Central Branch in Bedford. For additional information on Conservation Easements contact the Western Virginia Land Trust and their website David C. Perry Project Manager Western Virginia Land Trust 722 First St., SW, Suite L Roanoke, VA 24016-4120 Phone/fax (540) 985-0000 www.westernvirginialandtrust.org "Promoting the conservation of western Virginia's natural resources -- farms, forests, waterways, and rural landscapes." If you would like a lot more information about the above, it is suggested you download a complete copy of all 20 of the Grass Roots articles. It is the best way of getting educated on the issues and options available. You may download them as a PDF and than print out the document on your printer. Click on the following link Grass Roots Book