In order to be considered a “qualified conservation contribution” under the Internal Revenue code, a conservation easement must support a valid purpose such as the protection of natural habitat or the preservation of a view. While the list of valid purposes is short, the tax code language is sufficiently broad to allow a wide range of properties to qualify. Public access to the preserved property may be desirable but is not a requirement.
A qualified organization must be selected to accept the donation of the easement. Many existing conservation organizations qualify under this regulation. However, their appetite for these types of contributions varies, as do their requirements. Other types of organizations, such as an owner’s association, can alternately be structured to satisfy the requirements to qualify as a recipient.
The existing conditions of the property at the time of the placement of the easement must be thoroughly documented (the “baseline documentation”) including topography, soils, hydrology and a biological survey. Following the execution of an easement, the recipient organization must further conduct an annual inspection of the property to assure compliance with the terms of the easement. The cost of this activity may be required to be funded by the owner.
A conservation easement is a charitable contribution for tax purposes, and proper structuring and placement of a conservation easement can result in numerous benefits for the landowner, including meaningful tax deductions. The use of supportable and proven valuation parameters plays a key role in safely maximizing these potential economic benefits. The value of the income tax deduction claimed by the taxpayer must be substantiated by a valid appraisal prepared by a qualified appraiser according to specific rules and requirements. The plans must be feasible and should be prepared by experienced planners and engineers.
Rules vary for the realization of available tax benefits depending on the nature of the taxpayer (individual, partnership, corporation, trust), the ownership status (dealer, investor), and other factors. Because a significant portion of the economic benefits of the donation of a conservation easement is in the form of an income tax deduction, the taxpayer must have sufficient Adjusted Gross Income (AGI) to utilize the full extent of this deduction. Owners unable to fully utilize these deductions have found benefit in sharing the ownership of the subject property prior to the placement of an easement.
The structuring and execution of such plans requires a comprehensive understanding of current conservation legislation, Internal Revenue codes, Treasury Regulations and accounting practices. Compliance further necessitates the involvement of experienced consultants including engineers, appraisers and environmental professionals, as well as the participation of a qualified conservation organization. While the process may be complex, its effective application can result in the generation of attractive economic benefits to landowners and investors as well as the preservation of ecologically significant lands.
To find out more about easement requirements, or for a complimentary evaluation of the suitability of your property for a conservation-oriented strategy, just contact Forever Forests.