5. Conservation Easements
Legal restriction on how property can be
developed into the future.
Have been in use for nearly a century, and
courts have universally upheld.
Usually perpetual (permanent), although
can be done for term of years
Holding entity can be local land trust, local
Soil and Water Conservation District,
National Land Trust, or “sham” non-profit
6. Conservation Easements (Cont)
Flexible documents custom tailored to each
property or landowner
Require baseline documentation and
establishment of property’s resources to be
protected
Become LIABILITY of holding conservation
organization! Must be monitored, and
violations must be corrected.
27. Who Can Apply For Grants?
Protection of Parks
Protection of Protection of
Water Resources Natural Heritage
$$$
Money
Available
Protection of Farmland
28. How Do We “Protect” Land?
Conservation Easements
Restricts use of property in perpetuity; protects
wildlife habitat, farmland, forest land, park lands,
and natural areas
Separation of most development rights from land
Usually donated; landowner gets tax deduction
29. Determining the value of
Conservation Easements
100 acres of land worth $2,000/acre
unrestricted
100 X $2,000 = $200,000
Easement placed on it limiting future
development to no more than two new
houses (one house per 50 acres)
Fair market value with the easement
restrictions now $1,200/acre
100 acres X $1,200 = $120,000
Value of Conservation Easement =
$80,000
30. Tax Benefits of Conservation
Value is deductible for Federal Income Tax
purposes, used against 30% of income, can
be spread over six years
NC Income 25% Tax Credit up to $250,000
for individuals, $500,000.00 for
corporations, can be spread over six years
May reduce property taxes & estate taxes
31. EXAMPLE OF INCOME TAX SAVINGS
Sarah & George earn $100,000
together.
•They’ll pay +/- $39,000 to IRS
•They’ll pay +/- $7,000 to NC DOR
SARAH AND GEORGE DECIDE TO
DONATE A CONSERVATION EASEMENT TO
THE LANDTRUST VALUED AT $200,000
5. Can reduce reportable income to $70,000 for 6 years to IRS.
• Would pay +/- $24,000 in taxes for 6 years ($90,000 savings)
6. Will get a $50,000 tax credit, therefore would pay NO state tax
for 6 years ($42,000 cash savings),
32. Federal Inheritance Tax
Spouse pays no tax
For 2004 no tax if estate is less than
$1.5million, $2 million in 2006
39-50% current tax rate
33. Section 2031( c )
Federal Tax Code
Additional Federal tax exclusion for
property under easement, 40% of value
of the land, excluding buildings, up to
$500,000 in 2004, Property under
easement must have been owned by
family for at least 3 years
34. Example
Davie Johnson owns 300 acre farm on Highway 73 near
Concord worth $4.5 million ($15,000/acre). Davie is a widower.
– If Davie dies TODAY $3,000,000 subject to Estate
Tax and kids would pay approximately $1,300,000 in taxes.
(kids have to sell all or part of the family farm )
- If Daniel dies in 2007 and farm is worth $6,000,000,
then $4,000,000 would be subject to Estate Tax and kids would
pay more than $1,500,000 in taxes. (Assuming no additional
changes in Tax Code)
(kids have to sell all or part of the family farm )
Can You Do Better Than That??
35. YOU BET!!!
Let’s say Davie called The LandTrust and
put a conservation easement on his
$4.5 million dollar farm in 2004.
- Appraiser deems farm to be “devalued”
to $2.5 million dollars. Daniel dies 3
years later and farm appraises at $2.8
million dollars as restricted. Because of
40% permitted reduction, farm deemed to
be $1.44 million and kids pay NOTHING!!!
