A conservation easement, a type of express easement, is created by a voluntary legal agreement between a landowner and another party, usually the government, which restricts the development of a piece of land. Under certain specific conditions, conservation easements are recognized by the U. S. Internal Revenue Service (IRS). If IRS requirements are met, the landowner may qualify for certain tax incentives. The requirements for a conservation easement approved by the IRS are as follows:
- The easement must have a valid conservation purpose; that is, the easement holder must be satisfied that protection of the land or resources is justified for conservation rea-sons. Different land trusts and government entities have different requirements that must be satisfied. Generally, the IRS requires purposes such as the following:
- Outdoor recreation by, or the education of, the general public
- Protection of a relatively natural habitat of fish, wildlife, or plants
- Preservation of open space
- Preservation of historically important land area or buildings
- The agreement must be completely voluntary: no one can force a landowner to enter into a conservation easement agreement. A conservation easement may be either donated or sold by a landowner to an easement holder.
- The agreement must be legally binding. It is recorded as a Deed of Conservation Easement. The agreement is binding on both present and future owners of the property. Both the landowner and the qualified easement holder must be in a position to enforce the terms of the agreement. This requirement recognizes the easement holder’s responsibility for periodic inspection of the property with the landowner.
- The agreement must be permanent and irrevocable. A conservation easement must be permanent in order to qualify for the income and estate tax benefits provided by the IRS. If a conservation easement is valid for a set period of time only, for instance, ten years, the landowner may be eligible for certain property tax benefits but is not eligible for federal and state income and estate tax benefits.
- The easement must be held by a qualified easement holder, i.e., a government entity or a land trust. While any government entity can hold an easement, those most likely to hold conservation easements include city and county governments and certain federal agencies, such as the U. S. Forest Service and the U. S. Fish and Wildlife Service. A land trust is a private, nonprofit corporation.
- The easement must restrict development of the land. Ownership of land includes a number of legally recognized rights, including the rights to subdivide, sell, farm, cut timber, and build. The goal of devising a conservation easement is the landowner’s voluntary agreement to give up one or more of these rights in order to protect certain natural resources. Prohibitions could include such matters as limitations on roads, structures, drilling, or excavating. The landowner could retain certain rights as long as those rights did not interfere with the conservation goals of the easement. For example, the landowner could retain the right to use the land, to restrict public access, and even to construct additional structures on certain sites.
When a landowner donates a permanent conservation easement to a land trust, the landowner may deduct the value of the easement from federal and state income taxes. The value of an easement is the difference between the fair market value of the land without the restriction and the fair market value after the restriction. If the value of the parcel exceeds $5000.00, the value of the conservation easement must be computed by a certified appraiser. The landowner can deduct up to 30 percent of the adjusted gross income over a period of six years until the value of the easement is exhausted, if the property has been held for investment purposes for more than twelve months.
The organization that holds the easement has the right to enter and inspect the property and is legally obligated to assure that the property is in compliance with the terms of the easement.