Real Estate & Property Law

Conservation and Preservation Easements

An easement is a right to use the property of another for a specific purpose. An easement may be granted to permit a neighbor to cross a landowner's property, or to allow a utility company to lay pipes or railroad tracks in a particular area. Easements may also be used by the government or a land protection organization to restrict the development of a parcel of land for conservation or preservation purposes. Conservation and preservation easements ensure that private land will remain undeveloped, while providing the owner of the land with certain tax benefits.

Conservation Easements

Purpose

A conservation easement restricts private and commercial land development in order to protect natural resources, such as wildlife, timber, water and open space. While a landowner granting a conservation easement maintains ownership of the property, the use of the property is restricted by the easement. Because conservation easements are designed to last indefinitely, such easements ensure that property will remain protected regardless of who owns the property in the future.

Creation

Though specific requirements vary between states, conservation easements are typically created by an express agreement between a landowner and a private organization or government agency. The agreement must be in writing and signed by both parties. After the agreement is signed, it must be recorded with the appropriate county register.

Tax Implications

There are a number of financial advantages to granting a conservation easement. For example, a landowner may be eligible for a charitable income tax deduction equal to the amount of the donation. An easement donation is valued by calculating the difference between the fair market value of the property with and without the easement. Conservation easements may also reduce federal estate taxes by decreasing the total value of the estate and making the landowner eligible for an additional estate tax exclusion. In addition to federal tax benefits, states may consider conservation easements when calculating both income and property taxes.

IRS Requirements

In order to qualify for the above federal tax advantages, the United States Internal Revenue Service (IRS) requires that the conservation easement satisfy the following conditions:

  • The easement must have a valid conservation purpose, such as the preservation of open space or outdoor recreation, or the protection of plants or wildlife.
  • The easement must restrict the development of land.
  • The landowner must voluntarily agree to grant the easement.
  • The agreement must be legally binding and officially recorded.
  • The easement must be perpetual, i.e. it must last forever.
  • The easement must be held by a qualified easement holder, such as a government agency or land trust.

Preservation Easements

Purpose

Preservation easements are used to protect privately owned historical properties. A preservation easement may prohibit the development of land, as well as the alteration of a building or structure. Preservation easements may also dictate the manner in which a historical property may be used.

Creation

Preservation easements, like conservation easements, are created by express written agreement signed by both parties and recorded with the appropriate county authorities.

Tax Implications

A landowner granting a preservation easement may be eligible for a federal charitable income tax deduction equal to the fair market value of the property with and without the easement. Some states also provide landowners with income tax deductions for preservation easements. Because the value of the property with the preservation easement is less than it would be as developed, a landowner's federal estate taxes and state property taxes may also be reduced.

IRS Requirements

As with conservation easements, a preservation easement must meet certain requirements before a landowner is eligible to reap the tax benefits of the easement.

  • The easement must preserve a certified historic structure or historically important land area. Certified historic structures and historically important land areas must be listed as such in the National Register of Historic Places or located in a National Register district and certified by the Secretary of Interior as being historically significant.
  • The organization seeking to hold the easement must engage in the preservation of historic places and must have the resources to maintain and enforce the easement.
  • The decision to grant the easement must be voluntary.
  • The agreement must be legally binding and officially recorded.
  • The easement must be maintained in perpetuity.
  • The public must have reasonable visual access to the historic property. The degree and nature of the access may vary depending upon the type of property and the extent of its historical significance.