Law Talk: A Conservation Easement Can Save You Thousands in Taxes
In 2010, Congress extended the enhanced tax deduction for Conservation Easement Donations (“CEDs”), but only for a limited time. This provision is a real gem for anyone owning a piece of undeveloped land. But you must act quickly.
CEDs allow landowners to create and grant a property easement to a land trust or other non-profit and deduct the value of the easement form their income taxes, all while maintaining full control and ownership of the property. The amount of the deduction is determined by the decrease in value of the property from before the easement to after.
Example: Farmer John owns 100 undeveloped acres near a growing town. John decides to donate a conservation easement to ABC Land Trust. The easement simply restricts John from developing the property into residential or commercial development, which he never intended to do anyway. Essentially, John and his family and his heirs can still farm, hunt, fish, ride ATVs and otherwise enjoy the outdoors on the land as they had always planned. Indeed, the great part is that John still owns and controls his land. He can even still sell the land as encumbered by the easement. He has only donated the right (and the value associated with the right) to development the land.
So what does John get for the donation? He gets an income tax deduction equal to the value of the donation, which is determined by comparing the appraised value of the land with development rights vs. the appraised value of the land without the development rights. For example, if his 100 acres of developable land was worth $1 million dollars, but the land – as restricted by the easement prohibiting future development – would be worth $100,000, then John would get a tax deduction of $900,000!
Moreover, the recent Congressional legislation allows individuals to spread out the value of the deduction for up to 15 years.
This is just an overview of CEDs. Each situation is unique, and landowners should consider taking advantage of this amazing tax deduction. While Congress may ultimately extend the time period to take advantage of this tax strategy, the legislation is currently expected to expire on December 31, 2011.