If you own or have inherited some undeveloped land, you might be wondering what to do with it. The most common options are to:
- Keep it and hope it appreciates (especially in an area with a lot of urban expansion)
- Develop it yourself
- Sell the trees for logging if it is forested
- Sell it to the highest bidder
If you have a “green thumb,” charitable inclination, or a projected tax bill, there is another option not many people know about called a conservation easement.
What Is a Conservation Easement?
Also known as a conservation restriction or agreement this is a, “…voluntary, legal agreement that permanently limits uses of the land in order to protect its conservation values.”
Currently, the US Department of Agriculture recognizes over 140,000 easements totaling over five million acres nationwide.
What Requirements Must Land Meet to Become a Conservation Easement?
While there is no minimum amount of acreage that must be put into an easement, not all land qualifies. The intent when creating a conservation easement must be to preserve the land and restrict development.
Commonly, land is put into a conservation easement to protect its agricultural use, wildlife, historical value, or natural areas like bodies of water, wetlands, and forests. The land must be put into a land trust through your county, state, or a national conservancy group.
Conveying the land into an easement can take anywhere from a few months to more than a year due to paperwork requirements, surveying the land for assessed value, setting boundaries, etc. You still control the land but there are restrictions on what you can do on the portion that is put into the easement. However, you can still restrict things like public access, allow scientists to observe the land, etc. in the agreement.
Are There Any Disadvantages?
The biggest disadvantage of creating a conservation easement is that once the entire plot or portion is put into the land trust, the agreement “runs with the land.” This means it is permanent and binding to all future land owners or heirs and they cannot adjust the terms or terminate.
Since the land that is put into an easement cannot be developed, it also reduces its overall value. And, future owners and heirs may not have the same affinity for conservation as the creator did.
What Are the Tax Benefits of Donating Land to a Conservation Easement?
When you put land into a conservation easement, it is appraised for value. For federal taxes, the person who donates land into a conservation easement can use that assigned donated value to deduct up to 50% of their adjusted gross income in the year of donation and the years after, up to 15 years, unless it is used up sooner.
There are 16 states that offer state tax deductions and credits for these types of easements as well. In North Carolina, you can deduct up to 25% of the appraised value donated, up to a max credit of $25,000 (or $500,000 for corporations), which can be carried forward for 5 years unless used up sooner.
In the case of possible estate taxes being owed after someone’s death, the land they have could be donated to one of these to reduce the size of the estate and lessen the tax burden. Since the land cannot be developed or realize its full value, there is usually a reduction in property taxes as well.
Working with a financial advisor can help you navigate the best options for your undeveloped land. Schedule an appointment with one of our advisors if you have any questions.