What is a conservation easement?
A conservation easement (CE) is a tool landowners can use to protect their land. It is a legal agreement between a landowner and a land trust (or other nonprofit conservation organization) that permanently limits a property’s uses in order to protect its conservation values.
When you own land, you also “own” certain property rights, including the right to subdivide and develop the property to the extent that zoning allows. When you donate a CE, you voluntarily give up some of those rights, but some rights to a limited amount of subdivision and/or buildings may be retained.
When you donate a conservation easement, an appraiser determines the value of that charitable donation, and its value can be deducted from your federal income taxes.
Why would you put a Conservation Easement on your land?
- To protect the land so that future generations may enjoy it
- To leave a legacy
- To qualify for a federal income tax deduction
- To qualify for SC income tax credits
- To protect your heirs via a significant reduction in estate taxes
After the Conservation Easement is in place, what happens?
You and successive owners continue:
- to own, manage and pay taxes on the land
- to use the land as you always have; for example, farming, hunting, and other recreation
- to enjoy your private property with no access by the public.
You can pass the property on to the next generation, sell it, trade it – you retain all the rights of ownership, except those that you voluntarily gave away in the CE.
Financial Benefits of a Conservation Easement Donation
Charleston County Greenbelt Grants:
For a limited time, there is Charleston County Greenbelt funding available to land trusts for the purchase of qualified conservation easements on rural lands. However, the amount of this funding would be well below the appraised value of the conservation easement, and in order to qualify for funding, the landowner must relinquish most of his or her development rights.
Federal Income Tax Deduction:
Enhanced tax benefits for donated conservation easements were renewed in January, 2013. Set to expire on December 31, 2013, the following benefits may apply: Conservation easement donor can deduct up to 50% of their adjusted gross income in the year of their donation, or 100% if their income is derived from ranching or farming, and continue to take deductions for up to 16 years.
IRS Previous Rules: Says the conservation easement donor can deduct 30% of his adjusted gross income on his annual tax returns for up to6 years (or until the deduction is used up).
Hypothetical Example: John Doe is considering putting 60 acres of his land under conservation easement. If the appraised value of the conservation easement is determined to be $500,000 then that’s the amount of his Federal income tax deduction.
If John Doe's annual income is $200,000, he will be able to deduct $60,000 per year. In the 6-year timeframe, he will have deducted a total of $360,000.
SC State Tax Credits:
With a conservation easement donation, you also get SC Income Tax credits, which can be used to reduce your SC income taxes owed. Also these credits can be sold or transferred to another person. SC Tax credits are calculated at $250 per acre x 60 acres (John Doe’s case) = $15,000.
Estate Tax Reduction:
The estate tax burden for heirs is significantly reduced when the property has a conservation easement on it at the time of the landowner’s death. When there is a conservation easement on the property, not only are estate taxes reduced due to the lowered property value, but the heirs get to reduce the estate’s value by an additional 40% before the estate taxes are calculated.
|Original value of land/estate without CE||$1,600,000|
|Reduced value of land with CE||$ 800,000|
|Additional 40% reduction after death||$ 320,000|
|Reduced taxable value of the estate after CE||$ 480,000|
How to get started
- Discuss your plans with family and/or partners
- Call the Edisto Island Open Land Trust for information and assistance*
- Discuss potential tax benefits with your financial advisor
* EIOLT will be your partner and guide throughout the CE donation process, which involves numerous steps and usually takes several months to complete.