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To learn more about any of these topics, please don't hesitate to contact the Land Trust office at 734-302-LAND (5263).
What
is a Conservation Easement?
A Conservation Easement is a legal agreement reached voluntarily
between a landowner and a land trust that protects water quality,
wildlife habitat, scenic vistas, agricultural productivity
and other conservation values permanently restricts the use
of property by current and future landowners keeps property
in private hands. Donating some or all of the development
rights to a qualified, tax-exempt organization like the Washtenaw
Land Trust, and meeting other specific conditions, allows
a landowner to be eligible for certain tax benefits. The Easement
must be recorded with the county register of deeds to be effective.
The land trust becomes responsible for ensuring that the restrictions
are upheld for the length of the Easement, usually in perpetuity.
If violations occur, the land trust will work to have them
corrected. WLT occasionally considers the purchase of a Conservation
Easement, and offers free, no obligation assistance with local,
state and federal programs that purchase Conservation Easements.
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What can be done with property protected
by a Conservation Easement?
Owners of properties protected by a Conservation Easement
must abide by the agreement reached between the owner who
signed it and the land trust. All rights to the property not
specifically relinquished in the Easement are retained and
may be exercised. The landowner owns the land, can live on
it and can use it in any way consistent with the Easement
and can sell, give or pass on the property to anyone. The
landowner is obligated to pay taxes on the property and ensure
that the terms of the Easement are not violated. • Back
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Can
a property with a Conservation Easement be developed?
Some Conservation Easements permit a limited amount of
development. If development is allowed, it usually applies
only to a portion of the property. Easements are flexible
documents that can accommodate sensitive development as long
as the property's conservation values are not negatively affected.
The Easement can be applied to the landowner's entire property
or to only a portion of it, such as the land along the bank
of a stream. Each Conservation Easement is designed specifically
to address a property's unique characteristics and the interests
and needs of the landowner. • Back
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How
long does a Conservation Easement last?
Most Conservation Easements are perpetual in order to permanently
preserve the land. The Easement must be granted in perpetuity
if the landowner will be claiming a charitable deduction for
federal income tax purposes. Easements may be drafted to be
valid for a specific number of years, after which they cease
to have any effect. The Washtenaw Land Trust does not typically
draft this type of easement. • Back
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Does
the public have access to land protected by a Conservation
Easement?
The public does not have access to Conservation Easement properties
unless specifically authorized in the Easement . Granting
public access in the Conservation Easement document at the
time of donation is one way to qualify for a federal income
tax deduction, but is usually not necessary for the landowner
to obtain tax benefits. • Back
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What
does protecting land with a Conservation Easement do to property
taxes?
The property's current assessment for tax purposes determines
if tax benefits may be realized by protecting it with a Conservation
Easement. If the assessment reflects the property's development
potential and those rights have been permanently relinquished,
the landowner has standing to make a case to the local assessor
for a reduction in property assessment. If that is granted,
a property tax reduction will occur.
UPDATE - Property Tax Relief for Conservation Land: As of December 2006, Conservation Agreement properties in Michigan are exempt from the reassessment and subsequent substantial increase of property tax that ordinariliy occurs when a property changes hands. This is great news for conservation-minded landowners who may sell or pass on their land in the future.
This means that even after conservation agreement properties are bought, sold, or passed on, the property tax does not “pop-up” – it is capped at the typical year-to-year increase of five percent or the rate of inflation, whichever is less.
This helps property owners in two ways: 1.) It makes it more viable for large tracts of family land to be transferred to the next generation, without a subsequent increase in the property taxes, which may make its continued ownership not cost effective. 2.) It may encourage buyers for conservation properties, which will be taxed at a lower level than comparably assessed properties.
To learn more about this new change, please contact the Land Trust at 734-302-LAND (5263).
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How
is the value of the development rights in a Conservation Easement
determined?
The change in property value associated with a Conservation
Easement must be determined by a qualified real estate appraiser.
The value of the Easement is the difference between the value
of the land without the Easement restrictions and the value
of the land after the restrictions have been applied and the
development rights have been removed. For an Easement donation
that qualifies under Internal Revenue Service regulations,
this amount is generally the value of the charitable donation.
For an Easement sale, this also is the method for determining
the payment to be made by PDR. • Back
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Example:
The Smith family conveys a perpetual Conservation Easement
on its 80 acre farm to the Washtenaw Land Trust. If the property's
current value is $3,000 an acre, its total fair market value-before
the Easement is in place-would be: 80 acres x $3,000/acre
= $240,000. If removing the development rights lowers the
value to $1,000 an acre, the then total market value of the
restricted property would be: 80 acres x $1,000/acre = $80,000.
The difference between the before and after values is the
value of the Easement: $240,000 - $80,000 = $160,000.
How
are the federal income tax benefits of a Conservation Easement
calculated?
Under the Internal Revenue Code, qualified Conservation Easement
donations may be treated as charitable gifts for federal income
tax purposes. The value of the gift can then be deducted at
an amount up to 30% of the donor's adjusted gross income (AGI)
in the year of the gift. If the easement value exceeds 30%
of the donor's income, the excess can be carried forward and
deducted (subject to the 30% limit) in each of the five succeeding
tax years.
Example:
The value of the Smiths' easement, as figured above, is $160,000.
If their AGI in the year of the donation is $100,000, they
would be able to deduct $30,000 (30% of $100,000) in the first
year. Since the value of the easement is greater than their
allowable deduction, the Smiths would also be able to deduct
$30,000 in each of the next four years (assuming their income
stays the same) and deduct $10,000 in the fifth year in order
to claim the full amount of the easement donation.
UPDATE - Expanded tax incentives: For conservation agreements donated before December 31, 2007, new expanded tax incentives are available:
- The value of the donation is deductible at an amount up to 50% of the donor's adjusted gross income (AGI) in the year of the gift (increased from the prior limit of 30%.)
- Qualified farmers may deduct up to 100% of their income (increased from the prior limit of 30%).
- If the donated value exceeds the deductible amount in a given year, the excess can be carried forward and deducted (subject to the percentage limit) for up to fifteen succeeding tax years (increased from five years.)
To learn more about these expanded tax incentives, please contact the Land Trust at 734-302-LAND (5263).
For
Easement sales, the Internal Revenue Service treats the income
derived as a capital gain. For most taxpayers, the applicable
tax rate is 20% of the payment received. Landowners can reduce
or defer tax due by purchasing another income-producing asset
(such as another parcel of land), or can reduce the tax due
by donating a portion of the appraised value. • Back
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How
does a Conservation Easement affect Estate Taxes?
The donation of a Conservation Easement--whether
made during a landowner's life or by bequest--can reduce the
value of the estate upon which taxes are calculated. In some
cases, the value of an estate after an Easement donation may
fall below the lifetime exemption so that taxes are avoided.
Good planning is necessary to ensure that heirs of estates
that include property receive maximum tax advantages. WLT
is helping --Estate Planners learn more about the benefits
of Conservation Easements-- in a Fall 2001 seminar.• Back
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Is
it possible to donate or sell land in fee simple?
Most definitely! WLT has accepted the donation of three properties
in fee simple that are managed as nature
preserves. In those cases the donors may declare the full
market value of the property, determined by a real estate
appraiser, as a deduction for federal income tax purposes.
These lands are then made accessible to the public for quiet
recreational uses such as hiking, birdwatching, cross-country
skiing and nature study. WLT also occasionally considers the
purchase of land for a nature preserve.
In
addition, Washtenaw County and the State of Michigan have
funds available for the purchase of lands for public ownership
and recreation. WLT offers free assistance to landowners with
properties which those agencies may be interested in acquiring.
WLT and public agencies usually ask the landowner to consider
selling at a price below the appraised value to make limited
funds go further. Doing so also provides the seller with access
to federal income tax benefits from a "bargain sale."
It
is also possible to donate property during one's lifetime
but reserve the right to live on the property. These arrangements
are called "reserved life estates" in which a "remainder interest"
is donated to the land trust. This type of donation may also
be tax deductible at the time the gift is made.
To learn more about any of these topics, please don't hesitate to contact the Land Trust office at 734-302-LAND (5263). |
