CREATING CONSERVATION EASEMENTS

 

Brett Cole Barn
Barn in the Beaverkill, photo by Brett Cole

The goal of the land conservation program of the Open Space Institute is simple:permanent conservation of land and its natural, scenic, and historic resources. We accomplish this by purchasing and accepting donations of land and conservation easements.

In each case, we work through voluntary, cooperative and confidential relationships with individual landowners to develop the most appropriate conservation method for their particular parcel.

Conserving land requires careful and thorough consideration. Each landowner has a unique vision for the future of the property that involves financial, legal and land planning matters. OSI’s professional land protection staff, in conjunction with the landowner’s legal and financial counselors, determine the most effective and efficient way to realize the critical and shared goal of permanently protecting the property’s scenic beauty, wildlife habitat and special natural resources.

Basic Facts about Conservation Easements

1. Each conservation easement is tailored to fit the needs and desires of each individual landowner and the parcel of land. No two are alike.

2. Conservation easements do not require public access to the protected land.

3. Any landowner may sell or donate a conservation easement.

4. A landowner may choose to protect an entire parcel or parts of it, thereby retaining the right to build a limited number of additional structures in the future.

5. After selling or donating a conservation easement, the landowner does not give up ownership of the land, and may continue to live on it, sell or mortgage it, or pass it on to heirs or other beneficiaries.

6. Donated conservation easements are recognized as tax-deductible charitable donations under Section 170(h) of the IRS Code.

Tax Consequences
Income Tax

Conservation easements are recognized as deductible charitable donations under federal and state income tax law. To qualify for an income tax deduction, the IRS requires that a conservation easement meet certain “conservation purposes” which include: preservation of open space, significant habitat, public views, historic lands and structures; opportunities for the general public to enjoy outdoor recreation or education; and other public benefits such as watershed protection.

The Pension Protection Act of 2006 provides new conservation tax incentives that increase deductions for donations. A taxpayer may take a deduction, in the amount of the Fair Market Value (“FMV”) of the donation, to offset up to 50% of the donor’s adjusted gross income. Any amount donated in excess of this threshold, can be carried over for forward for fifteen years, subject to the same 50% of income limit each year. This applies to all donations made in 2006 and 2007. Additionally, a qualifying farmer or rancher, as in individual or corporation, can offset up to 100% of the donor’s adjusted gross income for the same 15-year carryforward. Donors who expect to take a tax deduction for the value of a conservation easement should have their tax advisors review the transaction early on in the process.

A standard deed restriction placed on property in the absence of a conservation easement does not provide the tax benefits described above.

Estate Tax
Escalating real property values stemming from development pressure have made passing land through an estate an expensive proposition. Because estate tax rates are so high as much as 50%-- land that has been in the family often has to be sold to pay the taxes, and the heirs may have little discretion about to whom it is sold and for what purpose. While legislation recently was enacted to eliminate estate taxes, the new law lasts only a decade and may be amended when it comes up for renewal.

A conservation easement granted during the grantor’s lifetime, or even in the grantor’s will or by his or her executors, can significantly lower the taxable value of land in an estate. Internal Revenue Code 2031(c) allows for an exclusion from the taxable gross estate of 40% of value of land subject to the conservation easement.

Appraisals
In order to qualify for a tax deduction, the grantor of a conservation easement must have the value of the easement ascertained by a qualified appraiser. The appraisal must be for the value at the time of the donation, and must be completed before the landowner files a tax return for the year in which the easement is granted.

The appraisal measures the development value of the property before and after the easement limits went into effect. For instance, if a conservation easement prohibits all further subdivision, the appraiser must document the land’s highest and best use as a developable lot. The appraiser then calculates the market value of the property with restrictions. The difference between the two values establishes the value of the donation for tax purposes.

Open Space Institute’s Commitment

When OSI accepts a conservation easement, it assumes a perpetual obligation to monitor, enforce and ensure that the land is conserved according to the terms of the easement. This entails the creation of a Baseline Data Report (“BDR”) that documents the condition of the property, down to the identification of each tree, stone wall or structure, at the time the easement encumbers the property. Through photographs, maps and narratives, the BDR provides OSI and the landowner with a definitive analysis of current and permitted activities. OSI staff also monitors the property annually, sometimes using aerial equipment, to ensure that the conditions of the property have not been impermissibly altered. If a violation is identified, OSI must pursue enforcement and seek to have the violation cured, potentially resorting to legal means. At the landowner’s request, referrals to naturalists, foresters, and other natural resource professionals will be provided for advice on land management strategies to maximize a property’s ecological value and natural beauty.

To assure that OSI can comply with the statutory mandate to steward, monitor and enforce the terms of every conservation easements, OSI asks landowners to contribute to the Easement and Stewardship Fund. This is a purely voluntary donation, qualifying it as an additional charitable contribution, and it can be made upon completion of the easement or over a longer period of time. The amount of the donation is based on several factors including the complexity of the easement, the acreage of the restricted property, and the number of reserved rights included in the easement.

A Step by Step Guide to Creating a Conservation Easement with Open Space Institute (OSI)
1.  The first step in conveying a conservation easement is for the landowner to contact OSI and determine whether the property is suitable for inclusion in OSI’s conservation easement program. If that is the case, a meeting is arranged on-site to view the property and discuss the landowner’s preservation goals and development needs, if any. At this time, the landowner will be given a copy of OSI’s “Conservation Easement Policies”, which contain important guidelines for OSI staff as well as information for landowners on how OSI manages its conservation easement program.

2.   The landowner and OSI staff will begin to collect all the necessary information regarding the land, including maps, deeds, surveys, photographs, tax bills and even inventories of present plant and animal species or other unique natural features.

3.   OSI will prepare a draft conservation easement outlining the restrictions and allowances that will govern the property. This will begin the substantive review by the landowner and will likely result in several revisions until both OSI and the landowner are satisfied. Landowner review should include the opinion of any legal or tax advisor familiar with the transaction.

4.   When agreement has been reached, OSI staff will present the proposed conservation easement to its Board of Trustees for approval. All easements must be approved by OSI’s Board at one of its quarterly meetings to ensure that the easement meets the criteria of OSI’s Conservation Easement Policy and provides significant protection of the resources in question.

5.   Following Board approval, OSI and the landowner will begin to collect and compile the various necessary documents for the completion of the easement donation, including:

a. If the easement will be donated, the landowner, at the landowner’s expense, generally engages an appraiser to begin an appraisal of the value of the donation if a tax deduction is to be involved, and commissions any engineering work needed to support the appraisal. If OSI purchases the easement, the appraisal will be commissioned and paid for by OSI.

b. The landowner also provides OSI with any existing surveys, and, if a subdivision or update is necessary, the landowner and OSI will engage a surveyor to create any new surveys needed for
the easement.

c. The landowner provides OSI with any existing deeds and title reports, and arranges to subordinate any existing mortgages to the conservation easement. OSI updates the title report, and creates the baseline data report, which describes and documents the condition of the property when the easement is donated. This report also provides a blueprint for long-term preservation of
easement lands.

6. The Landowner and OSI execute the conservation easement and file it with the County and State Department of Environmental Conservation.

7. If the easement is donated, OSI then provides the landowner with a written acknowledgement of the easement donation and of any accompanying stewardship donation, and the landowner provides OSI with a copy of the appraisal and an IRS Form 8283, signed by the appraiser, which OSI then signs for the landowner’s tax return.

8. Finally, OSI will contact the landowner at least annually to arrange a site visit to monitor the easement.

Getting Started

To get started on a conservation easement contact Bob Anderberg, Vice President at the Open Space Institute, at (212) 290-8200.

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