Conservation Partners, LLC

What is a conservation easement?

Simply put, a conservation easement is a landowner-initiated agreement with a non-profit organization or government agency that establishes limits on how the landowner’s property will be used in the future. A conservation easement is legally binding on all future landowners, and will protect the land from inappropriate development and uses in perpetuity while allowing the landowner to retain the rights of private ownership.

Granting an easement is like voluntarily downzoning your land, or volunteering your land for permanent regulations that you help draft. You retain ownership of your land, subject to the restrictions imposed when you grant the easement.

Why do people donate conservation easements?

You donate an easement if you love your land and want to permanently protect the things you love about it, such as its scenic beauty, wildlife habitat, historic integrity, its ability to provide a farming or forestry livelihood, etc.

Remember that an easement donor technically is making a charitable donation in the form of certain valuable use and development restrictions. Those restrictions are perpetual and generally will reduce the market value of the land being protected. Thus, in most cases, an easement donor is making a genuine and usually significant economic sacrifice. But if you truly love your land, it’s probably not going to feel like you’re giving up much when you donate an easement. One way to look at it is this: you’re giving up something you didn’t really want anyway—the right to damage what’s special about your land.

Who is “the holder of the easement” ??

Certain government agencies and private charitable organizations commonly known as “land trusts” ? hold conservation easements in Virginia. The holder of your easement is responsible for enforcing the restrictions set forth in the easement. As the owner of the land, you remain responsible for its care and management. The easement holder will inspect the land about once a year and is available to consult with you to make sure the use of the land is consistent with the terms of the easement.

Why do easement holders want to acquire easements, and why do the donors get tax benefits?

The whole system supporting conservation easements— from the laws authorizing their creation and enforcement, to the formation of agencies and nonprofits to hold them, to the provision of financial incentives for landowners— exists because properly-drafted easements protecting land with important conservation attributes can be extremely valuable to the general public.

Much of the undeveloped private land in this country is providing significant benefits to the public in the form of agriculture, forestry, clean water, scenic views, wildlife habitat, and so on—benefits that would be lost if the land were developed. When a landowner donates a conservation easement to a qualified holder, the public receives a longterm guarantee that the benefits it has been receiving from the landowner’s land will continue to flow, unimpaired by development.

The federal government and many state governments offer income and estate tax incentives that reward—and partially compensate—donors of qualifying conservation easements for their economic sacrifice. By offering tax benefits to donors of qualifying easements, the government is offering to share with landowners the costs associated with permanently protecting the important conservation values of their land.

Will my land qualify?

Different easement holders have different criteria for determining which properties they want to work with, so it’s hard to generalize. Any undeveloped land could be eligible, whether it’s forest, wetland, meadow, or cropland. A few of the more important factors to be considered are listed below, though the list certainly doesn’t include everything.

• Consistency with comprehensive plan: You only may grant an easement under Virginia law if the perpetual protection of your land as open space is consistent with your county’s comprehensive plan.
• Size: As a general rule of thumb, the protection of a big tract—several hundred acres or more—will provide more public benefit than the protection of a tract smaller than 100 acres, all else being equal.
• Adjacency/proximity to other protected land: Even a relatively small parcel can provide important public benefit if it effectively enlarges or buffers an already protected land area, like a National Park, National Forest, Wildlife Refuge, Wildlife Management Area, or important private land already protected by a quality conservation easement.
• Threatened, endangered, or sensitive (TES) species or ecosystems: Not many folks have property like this, but the presence of TES species or rare ecosystem types on a property is a good indication that the protection of the property will provide significant public benefit.
• Water resources: Land with frontage on creeks, rivers, wetlands, large lakes, bays, etc. can be important to the public because inappropriate use and development of such land could have outsize negative impacts on water quality and critical wildlife habitat.
• Scenic values: Significant public benefit can be created by protecting land that is prominent in the vista enjoyed by the public from such public vantages as a designated Scenic Byway, a National or State Park, or a designated scenic river or waterway. Conservation easements can help protect the signature views that are of particular importance to the economies of some communities.
• Historic values: The protection of land and structures listed on the National Register of Historic Places or located in a designated historic district can provide significant public benefit.
• Particular federal, state, or local programs: Public benefit can be provided through the protection of land that has been specifically designated as important by one or more governmental conservation programs. For example, local governments commonly encourage the preservation of real estate devoted to agricultural, horticultural, forest, or openspace use through preferential “use value“? assessment and taxation.

What rights will I give up if I donate an easement?

As noted above, you give up the right to impair the conservation values of your land. Usually the most economically significant right you give up is the right to develop your land for residential subdivision or harmful commercial uses.

What rights will I retain?

After you have protected your land with a typical conservation easement, you can still sell it or leave it to your kids, live on it, farm it, and hunt, fish, and recreate on it. Your easement can be customized to some extent, and often you’ll be able retain certain limited residential and commercial use rights so long as you stick with the basic idea behind a conservation easement—that the easement must be drafted to protect the conservation values of your land. And you will be able to maintain your privacy: contrary to what some people assume, you do not have to give the general public a right to come in and walk around on the protected land.

Is it a lot of trouble to donate an easement?

Granting a conservation easement is one of the most consequential things a landowner can do, and it should be taken seriously and done correctly. Doing everything right can take a while, from several months to more than a year depending upon the complexity of the easement. But it’s worth it, and the process actually can be enjoyable if you work with the right people. You absolutely will need a good attorney and appraiser who are experienced with conservation easements, and of course you’ll want to choose your easement holder very carefully. In addition, working with an experienced consultant like Conservation Partners, LLC can help smooth the process significantly.

What tax benefits are available for easement donors?

At Conservation Partners, we firmly believe that an easement donation only will work if the donor is concerned primarily with protecting his or her land from development, and he or she should look to the tax incentives as a way of partially offsetting the cost of that protection. That said, an easement donor, depending on his or her financial situation, can potentially benefit from various federal and state income and estate tax incentives. The following is a list of some of the more important tax benefits available to donors of easements that qualify under applicable law:

• Federal charitable income tax deduction: The deduction, generally equal to the value of the easement, can be used to reduce the donor’s “adjusted gross income” ? by up to 30% (or 50% in some situations) per year for six years or until it’s used up. For years 2006 and 2007 only, the annual limitation is increased to 50% of adjusted gross income for all qualifying easement donations, and to 100% of adjusted gross income if the donor is a qualifying farmer. In addition, for easements donated during 2006 and 2007 only, the deduction may be taken over a sixteen year period. Prospective easement donors should obtain up-to date information on the federal income tax deduction from an independent, qualified tax professional.
• Estate & gift tax benefits: The donation of a qualifying conservation easement will not have gift tax consequences and will remove the value attributable to the easement from the donor’s estate for estate tax purposes. If certain requirements are satisfied, up to an additional 40% of the after-easement value of the land may be excluded from a landowner’s estate for estate tax purposes (subject to a $500,000 maximum).
• Virginia land preservation income tax credit: The state tax credit can be used to offset the donor’s Virginia income tax liability dollar-for-dollar, and any unused credit can be transferred by gift or sale to other Virginia taxpayers. The ability to sell the credit makes it attractive to easement donors who do not have significant Virginia income tax liability.

How does the state tax credit benefit an easement donor?

Here’s a quick example illustrating the benefit an easement donor might realize from the Virginia land preservation tax credit. Let’s assume that your 200-acre farm, located in an area where suburban sprawl is starting to occur, is worth $500,000. That’s the price at which you realistically could sell your farm as it is, not the product of an overeager appraiser’s fevered imagination.

We’ll also assume your land has significant conservation value, its perpetual protection is consistent with the comprehensive plan, and the easement you’re donating is reasonably restrictive, prohibiting subdivision and most commercial uses other than farming. It allows you to maintain or expand your existing house and build a guest cottage nearby—but no other houses! Your appraiser estimates that the easement donation will reduce the value of your land from $500,000 before the easement to $300,000 after the easement. Thus, the “value“ ? of your easement is the difference, or $200,000.

If the easement qualifies under applicable law, you will be entitled to a transferable land preservation tax credit equal to 40% of the value of your easement, or $80,000. After you register your credit with the Tax Department, you will own $80,000 of credit that can be used to pay Virginia income tax. You may expect to make enough money in the eleven years before the credit expires so that you can use up all $80,000 paying your own state income taxes. But if, like most easement donors, you don’t have that kind of income—or if you would rather have some cash up front rather than waiting—you’ll want to sell part of your credit. You can do that privately or through an intermediary who can help you find buyers.

As an important part of our work with landowners interested in conserving their land, Conservation Partners facilitates the transfer of credits for easement donors. Hundreds of individuals and companies look to us every year to supply them with high-quality land preservation tax credits that they use to offset their own state tax liabilities.

How much does it cost to donate an easement?

Some easement donors understandably wonder why it costs money to give something away. But donating a conservation easement is an important undertaking—you are placing permanent restrictions on the use of your land, and you have the opportunity to realize tens or hundreds of thousands of dollars of tax incentives—so good professional help is an essential investment.

Careful drafting by an experienced attorney is necessary to ensure that the easement is properly crafted to meet your needs, to express your long-term plans for your property, and to comply with all applicable legal requirements. In addition, an easement appraisal is a complex undertaking that requires significant expertise. Professional fees can total $5,000 to $10,000, and can be more when an easement transaction is very large and complex.

Finally, for general consultation, preparation, marketing, and sale of tax credits, Conservation Partners charges a fee that in most cases is equal to a percentage of the face value of the credits we sell (in 2007, our fee will be 6¢ per dollar of credit we sell). Each credit buyer will write a check to you for the full purchase price of the amount of credit he or she is buying, and you will then pay Conservation Partners our fee from your sales proceeds. Other arrangements are available for easement donors who don’t want to sell their credits.

I’m interested…what should I do first?

Call Conservation Partners, LLC. Our contact information can be found at the end of this booklet. We can get you started, and we’ll help you find an easement holder and introduce you to highly experienced attorneys, appraisers, accountants, and any other professionals you need to help you with your decision. Once you decide go forward, we will work closely with you and your advisors through each step of the process. At the end, we will register your credit with the Department of Taxation and then market your credit to our extensive list of buyers. Through the end of 2006, Conservation Partners has successfully facilitated the transfer of land preservation tax credits totaling more than $28 million, and we have worked with easement donors who have protected approximately 40,000 acres of farms, forests, and other open space land.