Preserve My Land

A conservation easement is a voluntary, legal agreement that permanently limits how land can be used in order to protect its conservation values for future generations. A conservation easement is established using a Deed of Easement, which is a contract like a Deed of Gift or Deed of Sale. It documents a landowner’s intention to restrict activities on the property that would deplete conservation values, as well as the Land Conservancy’s commitment to safeguard the land in perpetuity.

A conservation easement:

• Can be a highly effective tool to protect land.
• Keeps land under private ownership and continues to provide economic benefits to the region.
• Allows landowners to retain many private property rights so they can both utilize and preserve their land.
• May provide valuable tax benefits when donated.

The Land Conservancy provides interested landowners with information and guidance as they work with professional advisors such as a qualified appraiser and an attorney to establish and document the easement, then serves as a permanent steward of their conservation goals.

The primary reason most landowners donate conservation easements is to preserve the natural, scenic, and historical qualities of their land forever. Others may want to establish a legacy for their children and grandchildren. But, there also can be significant tax advantages associated with a donation.

A gift of a conservation easement may qualify as a non-cash charitable gift which may yield a deduction for federal income tax purposes and a credit for state income tax purposes. To realize those financial benefits an easement must: be given in perpetuity; be given to a qualified governmental or non-profit organization to monitor; have a qualified appraisal; and be donated exclusively for “conservation purposes” characterized by significant natural, scenic, historic, scientific, recreational, or open space value. In addition, there may be local property tax reductions and federal estate tax exemptions. A qualified appraiser must establish the fee simple value of the property and the amount by which the restrictions in the easement reduce the property’s fee simple value. The difference between the fee simple value and the fee simple value as restricted by the easement is the easement value, which is primarily based on the value of the development rights forgone by the donor. The appraised easement value is the basis for calculating tax benefits.

1. Donations of open-space easements that meet federal tax code requirements may entitle the donor to federal income tax deductions. For tax year 2018 and thereafter, the deduction is limited to 50% of adjusted gross income, which if not used up in 2018, may be carried forward at 50% of adjusted gross income for an additional fifteen years or until the donation is fully expended, whichever comes first. In addition, a farmer or rancher who receives in 2018 or thereafter more than 50% of adjusted gross income from the trade or business of farming or ranching is eligible for a tax deduction of 100% of adjusted gross income with the same carry forward right. IRS Form 8283 must be filed to obtain this deduction. Form 8283 requires attachment of a copy of the appraisal, an appraiser’s declaration, VOF’s acknowledgement of the gift, copies of the deed as recorded and the baseline documentation report.

A Virginia state tax credit has been established for conservation easements at 40% of the value of the easement. The amount of the credit that may be used by a taxpayer may not exceed $50,000 for taxable year 2018 and each taxable year thereafter, but any unexpended portion may be carried forward for the next 10 taxable years. For each taxpayer, in any one taxable year, the credit used may not exceed the amount of income tax otherwise due. In addition, any unexpended portion may be transferred to another Virginia taxpayer. A recent tax court opinion suggests that the income from the sale of tax credits held for more than one year prior to sale may receive more favorable long-term capital gains treatment. (Check with your tax advisor or attorney to determine whether and when tax credits should be sold.) Tax credits in excess of $1 million or more will be issued only if the conservation value of the donation has been verified by the Director of the Department of Conservation and Recreation (DCR) based on criteria adopted by the Virginia Land Conservation Foundation. Pre-filing review of the conservation value is available through DCR. There is a $75 million limit on the amount of tax credits that the Department of Taxation may issue in each calendar year. Form LPC-1 must be filed with the Department of Taxation for registration of credits and Form LPC-2 for transfer of credits. For an easement conveyed on or after July 1, 2015, the LPC-1 application must be filed with the Department of Taxation by December 31st of the year following the calendar year of the conveyance or the credit will be disallowed.