The Basics of Conservation Easements
What exactly is a Conservation Easement?
A conservation easement (CE) is a tool landowners can use to voluntarily protect their land. It is a legal agreement between a landowner and a private, nonprofit conservation organization, like the Congaree Land Trust (CLT), or a government agency, that permanently protects a property from development and subdivision. Some people consider a conservation easement the ultimate property right, as it allows the landowner to determine the future of the property and what it will look like for generations to come. Once a CE is recorded in the land records, all future owners are bound by its terms forever.
When you do a CE on a piece of property, you voluntarily and permanently give up some of the rights related to that property. For example, you typically give up the right to develop the property for commercial or industrial purposes. In some circumstances, you may be able to retain some limited rights to subdivide and/or build additional residential structures and related buildings on the property. You continue to own and live on the land and manage it as before the CE whether it be for farming, forestry, hunting, fishing, or general outdoor recreation. Even with a CE, you are still able to sell the property or leave it to your heirs.
When you create a CE on your land, the CE holder, such as CLT, accepts the responsibility to monitor the easement and to enforce its terms forever. We will visit the land annually, and we must be prepared to defend the terms of the CE agreement in court.
Why would you enter into a CE?
Preserve the uses and character of your land for generations to come. A CE is ideal for landowners who want to see the character, uses, and beauty of their land maintained in the future. This is the primary reason landowners enter into a CE with CLT.
Take advantage of federal tax deduction benefits to shelter income. The Internal Revenue Service recognizes the gift of rights as a charitable donation to a charity, like CLT. The value is determined by an appraisal that calculates the potential highest and best use of the land before the CE is in place and the value after the CE is recorded. The difference is the value of the gift and becomes the amount of the deduction.
Qualify for tax credit on your South Carolina Income Tax. If your donation meets the federal guidelines, you can qualify for tax credits on your South Carolina Income Taxes. These credits are good forever. They can be assigned, transferred to others and sold. You can get tax credits up to 25% of your federal deduction, or limited to $250 per acre of land under easement, whichever is less. You can use up to $52,500 in credits each year.
State tax credits can be used forever, or transferred, assigned or sold.
Reduce the taxable value of your estate. The CE reduces the value of the land, thereby reducing the taxable amount of your estate. In order to qualify, the land value must be reduced by 30%. Your heirs can exclude an additional 40% of the lands value at your death when a CE is on the land.
Potential Savings in Property Taxes. Once a CE is placed on your property, your land will always be taxed at the lowest ad valorem rate, which is now the agriculture rate, even if the land around you becomes developed and rises in value.
After the CE is in place, what happens?
You and successive owners continue to own, manage and pay taxes on the land. You can continue the uses of the land you agreed to retain. Your property is still private. You can pass it on to the next generation, sell it, trade it, and you retain all the rights of ownership, except those you voluntarily gave away.
What can the CE allow?
- Permanent protection of significant ecological areas, wetlands, watersheds, river and stream buffers, scenic views, woodlands, wildlife habitat, open space.
- Continuation of timber harvesting and other agricultural activities, planting for wildlife and game habitats.
- Protection of cultural, historic and archaeological sites.
- Limited subdivision of the land and housing development.
- Continuation of limited traditional uses of the land, home-based entrepreneurial pursuits.
Costs of doing a CE
There are costs to the landowner of putting together a CE. CLT requires an administrative fee for drafting the CE, which is a legal document. The IRS requires a baseline documentation report (BDR), which is basically a survey of the current conditions of the property and its defined conservation values. There is also a stewardship fee paid by the landowner that is used to cover CLT costs associated with the required annual monitoring of the property and if need be, defending the terms of the CE in court. The amount of the stewardship fee varies based on the size of the easement. Other landowner costs associated with a CE will be legal and accounting fees as well as the cost of a professional appraisal.
For more specific information about the process and costs of doing a conservation easement with the Congaree Land Trust, please contact us at (803) 988-0000.