CONSERVATION EASEMENT DONORS

“It’s with gratitude to those who before us who had the foresight to preserve the surrounding acres that we are now able to fill in the donut hole of the magnificent collection of adjoining properties to create a 250 acre area under the stewardship of Willistown Conservation Trust.”

— LEANNE & ROB MCMENAMIN

Conservation Easement Donors

remaining open and teaching

How Do Conservation Easements Benefit The Community?

Conservation easements serve to protect important natural and scenic assets — its water resources, wildlife habitats, agricultural lands, open space, historic structures, trails, and scenic views — without the need for appropriating public funds. Lands under conservation easement remain in private ownership and do not require public funds for support or maintenance.

Because conservation easements are granted in perpetuity, the community can depend upon eased lands as permanently protected open spaces — a lasting result not possible through zoning or other land use regulations.

How Do Conservation Easements Benefit The Landowner?

Landowners who donate conservation easements derive immense satisfaction from knowing that the scenic and natural resources of the land that they have lived on and cared for will be protected for the use and enjoyment of future generations. Conservation easements often provide families with the opportunity to plan together for the future use of the land, thereby avoiding possible conflict and misunderstanding at a later time.

Neighboring landowners who donate conservation easements on contiguous properties can provide mutual protection against unplanned development, and share the benefits of protecting larger resource areas such as watersheds, woodlands, and scenic landscapes.

Landowners who donate conservation easements generally are eligible for significant financial benefits through the reduction of federal income, gift, and estate taxes. Conservation easements give landowners peace of mind, knowing that their commitment to protecting their land will forever remain an enduring legacy for their family and the community.

“Our privately owned land and the ecosystems upon it are essential to everyone’s well-being, not just our own. Abusing land anywhere has negative ramifications

Federal Income Tax Benefits

In l969 Congress enacted legislation that permits a landowner to take a charitable deduction for the donation value of a qualified conservation easement. Internal Revenue Service regulations issued in l986 better defined the guidelines, including certain “conservation purposes” that must be met for an easement to qualify as a tax deductible charitable donation (Reg. Sec. 1.170A-14). There are no Pennsylvania state income tax benefits associated with the donation of conservation easements.

Passing the “Conservation Purposes” Test

The value of an easement may be deductible for federal income tax purposes if the easement is donated to a qualified organization, such as Willistown Conservation Trust, and meets at least one of the following “conservation purposes.”

Conservation Purposes

1. The preservation of land areas for recreation by, or the education of, the general public.

2. The protection of a relatively natural habitat of fish, wildlife, or plants, and similar ecosystems.

3. The preservation of open space, including woodland and farmland, for either the scenic enjoyment of the general public or when such preservation is pursuant to a clearly delineated governmental conservation policy. In either case, a significant public benefit must result from the preservation of such open space.

4. The preservation of an historically important land area or certified historic structure. Conservation easements held by Willistown Conservation Trust have been drafted to address most or all of the Conservation Purposes defined by the Internal Revenue Service. The rolling hills, lush stream valleys, and historic architecture and landscapes of our countryside are well-suited for preservation with conservation easements.

In addition to meeting at least one of the four conservation purposes, the IRS requires that an easement must be granted in perpetuity and given to a qualified recipient organization such as WCT. The qualified organization must (1) hold the easement solely for the stated conservation purposes; and (2) be able to enforce the easement and be prepared to take legal action, if necessary, to uphold its terms.

Value of the Donation

The value of the donation is determined by a qualified conservation appraisal and is generally equal to the difference between the fair market value of the property before and after the donation of the easement. The difference between the “before value” and the “after value,” less any ancillary benefit to the donor, is the amount that can be considered as a charitable donation for income tax purposes.

Assume, for example, that the owners of an unrestricted property worth $1,000,000 place a conservation easement on the land precluding future residential development and protecting the environmental features for the benefit of the general public. If a qualified appraiser then determines that the property’s fair market value is reduced by the easement to $600,000, the charitable donation would be valued at $400,000. If the donor were in the 35% tax bracket the tax savings would be $140,000:

($400,000 X 35%) = $140,000 (Approximate tax savings)

While virtually all conservation easements reduce property values, there is no rule of thumb for determining the diminution in value. Reductions in value can range from less than 10% to more than 90% of the fair market value depending on the limitations put on the property and the purposes for which it can thereafter be used. The reduction tends to be greatest where a highly restrictive easement is placed on prime developable land in an area experiencing intense growth.

Limitation on Annual Charitable Deductions

The tax law limits the maximum annual charitable deduction a donor can take on gifts of appreciated property, which includes gifts of land and conservation easements. This deduction is limited to 50% of the donor’s adjusted gross income in the year of the gift with any remaining deductible amount to be carried forward for up to 15 additional years.

The direct costs of preparing a conservation easement donation, the legal review of its text for conformity with the Federal code, and the stewardship contribution are fully deductible to the taxpayer. Other costs not directly associated with preparing the easement, such as an appraisal, accounting, or legal fees relating to value and/or tax treatment, may only be partially deductible for tax purposes. Donors should be sure to consult their tax advisor to confirm the tax treatment of all such expenses.