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Introduction to Conservation Easements


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James Oliver - Texas Agricultural Land Trust

Published in: Government & Nonprofit
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Introduction to Conservation Easements

  1. 1. Introduction to Conservation Easements Working Hard for Working LandsTM James Oliver Chief Operating Officer
  2. 2. OUR MISSION To conserve the Texas heritage of agricultural lands, natural resources, and wildlife habitats.
  3. 3. What is a Land Trust? • A private, non-profit 501c3 entity whose mission is land conservation • Known as the conservation easement “holder” • Has the right to monitor and enforce the conservation easement • Typically visits the property once a year to ensure that the terms of the easement are being upheld
  4. 4. What is a Conservation Easement? A voluntary, negotiated legal agreement between a landowner and a qualified conservation easement holder that permanently limits a property’s uses in order to protect the property’s conservation values. The legal glue that ties a property owner’s good intentions to the land in perpetuity.
  5. 5. What is a Conservation Easement? • Selectively removes rights from the title of the land • Individually tailored • Filed at the courthouse • A legal agreement provided for under state law. • Protects specific conservation values • Generally perpetual in nature • Runs with the land: binding on all future owners
  6. 6. Agricultural Conservation Easement • Limits future non-ag use, but encourages ag enterprises • Flexibility allows for economic changes • Permits construction of new agricultural buildings, fences, waterings, and residential dwellings • Does not require public access • Does not provide immunity from condemnation • Can be terminated but only under rare circumstances
  7. 7. Purpose of Conservation Easements • Protection of significant natural and ecological resources • Protection of historical resources • Public access for recreation or education • Protection of specific values The purpose of an agricultural conservation easement is to protect the viability and productivity of agricultural lands while also protecting their conservation values.
  8. 8. Types of Conservation Easements • Donated easements are governed by IRS regulations, must be perpetual to qualify for a deduction (Section 170(h) IRC) • Purchased easements (Purchase of Development Rights or PDR). Governed by the rules of the organization funding the purchase. Term easement possible, pending the funding organization’s rules.
  9. 9. Donated Conservation Easement Benefits • Income tax deduction – considered a Charitable Donation • Estate tax relief due to lowered appraised value • Facilitates succession planning and relieves pressure on heirs • Binds a landowner’s good intentions to the land in perpetuity • Protects production and conservation values of the land while eliminating the risk of fragmentation and non-ag development
  10. 10. Tax Incentives Enhanced tax incentives Made permanent by Congress in 2015 • Can deduct against 50% of AGI • Carry-forward 15 years (beyond the year of the donation for a total of 16 years)
  11. 11. Tax Incentive – How it works LAND VALUE $2,100,000 $2,400,000 After Conservation Easement Charitable Contribution Appraised Value Before Conservation Easement $4,000,000 Decrease in value 40% $1,600,000 Valuation of a Conservation Easement
  12. 12. Tax Deduction – Enhanced Incentive Let’s assume that the landowner’s annual adjusted gross income for income tax purposes is $200,000, which remains constant. The deduction resulting from the easement is as follows: (50 percent of $200,000 = $100,000) Year of Contribution $100,000 Carry Forward to Year 1 $100,000 Carry Forward to Year 2 $100,000 Carry Forward to Years 3 – 15 _ $1,300,000 TOTAL DEDUCTION $ 1,600,000 Bottom line: The Landowner is able to use up the entire deduction
  13. 13. Estate Tax Considerations
  14. 14. Estate Tax Considerations - Example Jones Ranch $33 Million $33 Million Smith Ranch
  15. 15. Estate Tax Considerations – Case Study Jones Ranch $33 Million $33 $22 Million Smith Ranch
  16. 16. Estate Tax Considerations – Case Study FET / Sells to pay taxes / divisions for heirs Jones Ranch $33 Million $33 $22 Million Smith Ranch SOLD
  17. 17. Purchased Agricultural Conservation Easements • Agricultural Conservation Easement Program (formerly known as the NRCS Grasslands Reserve Program and the Farm & Ranch Protection Program) • Passed within the 2014 Farm Bill • FY18 Funding for ACEP is $250 million • Up for re-negotiation in the FY18 Farm Bill • Requires a non-federal cash match Federal (Purchase of Development Rights)
  18. 18. State (PDR) – Texas Farm & Ranch Lands Conservation Program • Managedby Texas Parks & Wildlife Department • Oversight board = representatives from statewide agricultural organizations • Received a $2m appropriation in each of the last two legislative sessions to provide the non-federal cash match Purchased Agricultural Conservation Easements
  19. 19. Local / Resource Specific • City of San Antonio $360 million Aquifer Protection Initiative – to protect drinking water • City of Austin $50 million open space protection bond initiative, 2006 – to protect Barton Springs • DoD – to create buffers around military installations • Deepwater Horizon settlement funds – to mitigate the impacts of the spill • Mitigation banking – to mitigate impacts to species or water Purchased Agricultural Conservation Easements
  20. 20. Negotiating the Conservation Easement • Process essentially the same for donated vs. purchased easements • Determine reserved rights • Get an appraisal • Develop a “baseline report” • Easement is executed and filed in the real estate records at the county courthouse
  21. 21. Pros & Cons
  22. 22. Benefits • Income tax deduction - donated • Estate tax relief due to lowered appraised value - both donated and purchased conservation easements • Facilitates succession planning and relieves pressure on heirs • Binds a landowner’s good intentions to the land in perpetuity • Protects production, natural resources and conservation values of the land while eliminating the risk of fragmentation and non-ag development • Convert equity to cash (purchased easements) Can help landowners create a legacy for future generations!
  23. 23. Potential Drawbacks • High transaction costs in some cases • Limited funding for purchased easements • Sale of easement subject to capital gains tax • Tax benefits generally only available to the first generation • Use of property is limited for the future • Value of the property is reduced by the conservation easement
  24. 24. 28 Texas Agricultural Land Trust Slides Texas Agricultural Land Trust 1919 Oakwell Farms Parkway, Ste 100 San Antonio, Texas 78218 210-826-0074 CONTACT US