farm and forest land preservation with conservation easements
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Farm and Forest Land Preservation with Conservation Easements. Topics to be Covered. What is a conservation easement? What is a land trust and how do they relate to conservation easements? What sorts of restrictions do conservation easements place on landowners?

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Presentation Transcript
topics to be covered
Topics to be Covered

What is a conservation easement?

What is a land trust and how do they relate to conservation easements?

What sorts of restrictions do conservation easements place on landowners?

How can conservation easements benefit landowners?

What is involved in creating a conservation easement?

fine print
Fine Print

This presentation provides basic information on conservation easements.

Anyone involved in granting a conservation easement should contact qualified professionals for legal and financial planning assistance.

property ownership
Property Ownership

Property ownership is a collection of individual rights

This collection of rights is often compared to a “bundle of sticks” because individual rights can be removed from the collection just as a stick can be removed from the bundle

examples of property rights transfers
Examples of Property Rights Transfers

Lease – right to exclusive possession

Easement – right to use

Zoning

Deed with restrictions - retention of rights

Conservation easement

what is a conservation easement
What is a conservation easement?

Legal, voluntary agreement between a landowner and a land trust or government agency that restricts the development or use of property

In effect, conservation easements remove the right to develop the property from the landowner’s “bundle of sticks”

Conservation easements “run with the land” - they bind both current and future landowners

conservation easements
Conservation Easements

Land trusts and government agencies can leverage resources by only acquiring the rights relevant to their goals.

Landowners retain all other rights.

what is a land trust
What is a land trust?

A non-profit organization that holds land and/or the rights to enforce the provisions of conservation easements “in trust” for the public good

how can conservation easements benefit landowners
How can conservation easements benefit landowners?

Preserve desired land uses into the future

Allow continued use of the land

Potential source of income

Possible tax benefits

Property Taxes

Income Taxes

Estate Taxes

conservation easements as a possible source of income
Conservation Easementsas a Possible Source of Income

Some land trusts and government agencies can pay full value for the rights extinguished in a conservation easement

More often, they are only able to acquire these rights through either a “bargain sale” (below fair market value) or a donation

property tax benefits
Property Tax Benefits

Conservation easements often decrease the value of property because they foreclose the possibility of future development

Difference can be dramatic

Potential savings are often reduced if the land is already being assessed for its currentuse and not fair market value

income tax benefits
Income Tax Benefits

Donation or bargain sale may qualify as a charitable donation for federal and state income taxes

To qualify for federal income tax benefits, a conservation easement must meet certain requirements specified in Section 170 of the Internal Revenue Code

http://www.irs.gov/taxpros/article/0,,id=98137,00.html

estate tax benefits
Estate Tax Benefits

Conservation easements reduce value of an estate just as they reduce the value of the property for property tax purposes

If the easement reduces the value of the property by at least 30% it may also qualify for additional estate tax benefits under Section 1031 of the Internal Revenue Code

steps involved in granting a conservation easement
Steps Involved in Granting a Conservation Easement

Locate a receiving entity

Compile a baseline inventory

Negotiate and draft the terms of the conservation easement

Execute and record the documents

Get the property appraised

steps involved in granting a conservation easement15
Steps Involved in Granting a Conservation Easement

Locate a receiving entity

Must be a “qualified organization” for income and estate tax purposes

Compatible and stable partner

Must be willing to purchase or accept a donation of the conservation easement

Typical factors considered include current use, size and location of the property and costs of acquiring, monitoring and enforcing the conservation easement

steps involved in granting a conservation easement16
Steps Involved in Granting a Conservation Easement

Compile a baseline inventory

Establishes a reference point for determining compliance with the terms of the conservation easement

Includes

Title search

Survey of the property (may not be needed)

Description of current uses of the property

Description of resources that the easement is designed to protect

steps involved in granting a conservation easement17
Steps Involved in Granting a Conservation Easement

Negotiate terms

For working lands, landowner should seek not only to retain rights for current uses, but also the flexibility to allow future changes in operations

Receiving entity will seek meaningful and enforceable restrictions relevant to its mission

other landowner considerations
Other Landowner Considerations

Future borrowing power

Impacts of increasing property values

Conditions under which the terms of the conservation easement can be modified or invalidated

steps involved in granting a conservation easement19
Steps Involved in Granting a Conservation Easement

Execute and record the documents

Conservation easements must be executed by all current owners of the property

The holders of any mortgage or deed of trust must consent in writing to the easement and the consent must also be recorded

Its also prudent to inform others with interests in the property

Conservation easements are publicly recorded with other land records

steps involved in granting a conservation easement20
Steps Involved in Granting a Conservation Easement

Obtain an appraisal of the property

Needed to qualify for certain tax benefits

conclusion
Conclusion

Conservation easements are an attractive way to preserve current land uses

Conservation easements may have other significant benefits for landowners

Conservation easements are legally binding agreements that should not be entered into without great care and thought

Especially true for working lands

comments or questions

Comments or Questions?

For additional information see Farm and Forest Land Preservation with Conservation Easements available online at http://srwqis.tamu.edu/program-ruralurbaninterface.aspx

This presentation is produced by the Southern Regional Water Program with support by the Cooperative State Research, Education, and Extension Service, U.S. Department of Agriculture, National Water Program, under Agreement No. 2004-51130-03114. Any opinions, findings, conclusions, or recommendations expressed in this presentation are those of the author(s) and do not necessarily reflect the view of the U.S. Department of Agriculture.

federal income tax
Federal Income Tax

Sale For Less Than Fair Market Value of the Easement to a ‘Qualified Organization’ is Deductible

slide24
Deduction = Fair Market Value Minus Sales Price.

Deduction Limited to 30% of Person’s Adjusted Gross Income (10% For Corporations).

Any Excess Can Be Used For Up To Five More Years.

federal income tax25
FEDERAL INCOME TAX

DEDUCTION INCREASED FOR EASEMENTS MADE FROM

1/1/06 THRU 12/31/07

federal income tax26
FEDERAL INCOME TAX

DEDUCTION LIMIT RAISED FROM 30% TO 50% ADJUSTED GROSS INCOME

LIMIT RAISED TO 100% AGI FOR “QUALIFIED” LANDOWNERS

CARRY-FORWARD PERIOD EXTENDED FROM 5 TO 15 YEARS

qualified
“QUALIFIED”

MORE THAN 50% GROSS INCOME FROM FARMING.

‘AGRICULTURAL’ LAND

REMAINS AVAILABLE FOR AG USE UNDER THE EASEMENT

CAN BE AN INDIVIDUAL OR CORPORATION

for more information
For More Information

IRS Website

http://www.irs.gov/publications/index.html

This presentation is produced by the Southern Regional Water Program with support by the Cooperative State Research, Education, and Extension Service, U.S. Department of Agriculture, National Water Program, under Agreement No. 2004-51130-03114. Any opinions, findings, conclusions, or recommendations expressed in this presentation are those of the author(s) and do not necessarily reflect the view of the U.S. Department of Agriculture.

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