(757) 565-0343

Landowner Resources

Conservation Easements

  • Removes future development and subdivision of property
  • May allow for reservation of a future home site and/or agricultural structures
  • May limit activities adjacent to or within sensitive natural areas
  • Conservation easements are flexible – not “one size fits all”
  • Allow landowner to continue to own and typically permit current land use(s)
  • Does not grant public access
  • Conservation easements “run with the land” - they apply to both current and future landowners
  • May still use land as collateral for loan; lease, sell or pass property to heirs
  • Conservation organization or public agency (Grantee) that holds the conservation easement has right to monitor the property and enforce the easement
  • Conservation values or purposes – defined in Section 170(h) of the IRS code as:
    • Wildlife habitat (plants and animals)
    • Farm and forest land (open space)
    • Land for public outdoor recreation or education
    • Historic land or buildings Scenic viewshed

Enabling Legislation

  • Internal Revenue Code section 170(h)
  • Treasury Regulations section 1.170A-14
  • Va. Code section 10.1-1700 et seq (Open Space Land Act)
  • Va. Code section 10.1-1009 et seq (Conservation Easement Act)

Easment Valuation

  • Easement Value must be substantiated by a “qualified appraisal” done by a “qualified appraiser” ((IRC § 170(f)(11)(E)(ii) and Notice 2006-96)
  • Valuation Methods: Comparable Sales Method (using government purchases of easements; few comparisons); Subdivision Method of Analysis (danger of inflated appraisals); and before and After Method (most common).
  • Difference between Fair Market Value (FMV) of unrestricted property and the FMV of restricted property. Treas. Reg. Section 1.170A-14(h)(3)(i)

Potential Financial Benefits

  • Federal Income Tax Deduction
  • Federal Estate Tax Reduction and Exclusion
  • Virginia State Tax Credit
  • Local Real Estate Tax Reduction

Federal Income Tax Deduction

  • Open space easement donations that meet federal tax code requirements may entitle the donor to general income tax deductions.
  • Value of donated easement considered a Charitable Gift and can be deducted from donor’s federal income taxes.
  • For 2013, the deduction can be applied to 50 percent of adjusted gross income (AGI). Deductions not used the first year may be carried forward at 50 percent of AGI for an additional fifteen years or until the donation is fully expended.

Federal Estate Tax Reduction and Exclusion

  • Section 2031 ( c ) of the Internal Revenue Code provides an estate tax exclusion of up to 40 percent of remaining land value, excluding improvements, after it is protected by a qualified conservation easement.
  • The exclusion is capped at $500,000 and is reduced by less than 30% at the time of the contribution. To qualify, the easement must prohibit all but minimum commercial recreational use.

Virginia State Tax Credit

  • Virginia’s Land Preservation Tax Credit program allows conservation land and easement donors to offset their state income tax liability and receive cash flow by selling unused credits to other Virginia taxpayers.
  • A Virginia state tax credit has been established for conservation easements at 40 percent of the value of the easement. A minimum of $100,000 of tax credit may be used annual for up to the next 10 tax years.
  • Any unused portion of tax credits 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 lone-term capital gains treatment.
  • Recent prices for tax credits have gone as high as 90 cents on a dollar, enabling landowners to realize a substantial percentage of their equity from the real estate while still maintaining ownership of the land.
  • There is a limit on the amount of tax credits the Virginia Department of Taxation may issue in each calendar year. In 2013, the tax credit ceiling was $100 million.
  • Tax credits in excess of $1 million will be issued only if the conservation value of the donation has been verified by the Director of the Virginia Department of Conservation and Recreation.
  • Example: The value of an easement is ascertained by an appraiser. For example, an appraiser determines that the fair market value of a 200 acre parcel is $1 million. However, the value of the property with an easement is $500,000. So the donative value of the easement is then $500,000. The easement donor will receive 50% of that -$200,000 in Virginia tax credits.

Local Real Estate Reduction

  • Local real estate reductions vary by jurisdiction. Please check with your local jurisdiction for the amount of tax reduction.
Notes:
The information about tax benefits is intended to assist landowners, but is not tax advice. Please check with your tax advisor or attorney about qualifying for tax benefits associated with conservation easements.

Summary courtesy of Department of Conservation and Recreation

Please contact Caren Schumacher, Executive Director of the Williamsburg Land Conservancy (757) 565-0343 with specific questions.