Conservation Easements

Carol Greenberger
This section of Stekoa Creek would be ideal for a conservation easement to help create a greenway in Rabun County, GA.

Dick and Gillian Heywood live in southern Macon County, North Carolina in a 120-year old, restored log cabin on Middle Creek. Their 35-acres have been farmed since the Civil War, producing corn, beans, cattle and chickens. In just six years in the United States during the 1990s over five and a half million acres of agricultural land was converted to developed use. The Heywoods were concerned about the future of their property and wanted to ensure that it would continue to be used for agriculture, and not developed. With the help of the Little Tennessee Land Trust, the Heywoods established a conservation easement to protect their land’s agricultural heritage. The easement allows for continued farming, constructing farm-related buildings, and harvesting timber, while limiting any future subdividing of the land.

A conservation easement is a method landowners can employ to protect their property without selling land or giving up the ability to use and enjoy it. Landowners across the country are establishing easements to protect riverfront property, wildlife habitats, scenic vistas, forests and farmland, historic sites, urban gardens and many other types of land and natural resources. Over two and a half million acres of land in the United States are currently protected by conservation easements.

These voluntary legal agreements are made between landowners and another party, either a private land trust or a public agency, to restrict the development of a piece of property. The agreement must be permanent in order for the landowner to qualify for income and estate tax benefits. This means that the easement remains with the property even if it is sold or passed on to heirs. The agreement is legally binding and is recorded in the county in which the land is located. A conservation easement is usually donated, but in some cases they are sold to a land trust or public agency.

The usual rights of land ownership, such as the right to subdivide, sell, farm, cut timber or build are restricted under a conservation easement. The landowner agrees to give up one or more of these rights in order to protect a resource or conservation value. A landowner might prohibit dredging in a wetland, restrict chemical application in a river floodplain or prohibit the building of any structures or roads. Public access to the protected property is not a requirement of a conservation easement. The landowner may also specify rights they wish to keep, such as selling the property, harvesting timber or maintaining the land for agriculture.

The concept that a landowner can convey specific rights on his or her land is rooted in the history of English common law, on which our legal system is based. However, conservation easements are a more recent creation. Nearly every state has enacted laws authorizing conservation easements. Federal tax benefits were first provided by Congress to promote conservation in 1976. In addition, twelve states, including North Carolina and South Carolina, have enacted laws to either provide state income tax credits for conservation easements or to exempt the sale of them from state income tax.

While the tax savings alone do not usually provide enough of an incentive to be the sole reason for a conservation easement, the landowner may benefit from lower estate and property taxes as well as federal and state income taxes. Gifts of a conservation easement provide a charitable income tax donation to the landowner. The donation is based on the fair market value of the easement. The contribution is usually valued at the difference between the fair market values of the land without the easement, and the land with the easement.

The more development potential a property has and the more restrictive the conditions of the easement, the higher the value of the conservation easement. The annual federal income tax donation is limited to 30% of the donor’s adjusted gross income each year. If the entire donation cannot be taken in one tax year, a portion may be deducted for a total of six years. A landowner can split up the property into pieces and stagger the donation of the conservation easements, in order to receive full tax benefits. For example, several acres may be donated and the tax deduction taken over six years. Then additional acreage may be donated and the tax benefit on that second contribution taken over the next six years.

Placing a conservation easement on land may lower a landowner’s property taxes, because the property’s fair market value is lowered. The same reduction in fair market value would result in a decrease in federal estate and gift taxes. Recent amendments to federal gift and estate tax law offer a potential further savings regarding conservation easements. A new federal tax provision allows exclusion of land value from a descendant's estate if the land is subject to a qualified conservation easement. The exclusion applies after the value of the conservation easement is subtracted from the fair market value of the land, essentially giving the landowner the reduction in value twice. Of course, because we are dealing with taxes and the IRS, several limitations apply and the rules are complex. It is best to let a tax or financial advisor determine the tax ramifications and benefits for you.

State laws in Georgia, South Carolina and North Carolina provide benefits to landowners for conservation easements. Georgia’s General Assembly passed the Uniform Conservation Easement Act in 1992. The act authorizes and promotes the use of conservation easements. Georgia offers state income tax deductions, and reductions in property and estate taxes on conservation easements. As of April 2001 there were over 40 lands trusts active in Georgia and over 37,000 acres of land throughout the state are protected by conservation easements. Georgia also operates a Purchase of Development Rights program. Governor Barnes’ enacted the "Community Green Space Program," designed to purchase the development rights of property, focusing initially on high growth counties. The goal of the program is to preserve 20 percent of Georgia's land as green space.

In 1983, North Carolina became the first state to offer a state income tax credit for owners who donate conservation easements on their property. Unlike a deduction, which reduces your taxable income, a tax credit is subtracted directly from taxes owed. The credit allowed on North Carolina state income taxes is 25% of the fair market value of the donation. The ceiling has been raised from its initial $5,000 to the present maximum credit of $250,000 for individuals. To take advantage of the tax credit, the donation must serve a public benefit such as public beach access and use, public access to water or trails, fish and wildlife conservation, or other similar land conservation purposes. North Carolina has over 108,000 acres of land under conservation easements.

South Carolina passed the Conservation Easement Act of 1991 to protect natural resources, maintain or enhance air quality, ensure the availability of property for agricultural, forest, recreational, educational or open-space use, and to preserve historical, architectural, archaeological or cultural aspects of property. The initial law sought to make the donation of conservation easements attractive by requiring local tax assessors to consider the easement when assessing property value. In 2000 South Carolina added tax credit incentives. If a donation in South Carolina meets the federal guidelines, tax credits can be taken on state income taxes, as of June 1, 2001. These credits are good forever. There are limits however - tax credits can be taken up to 25% of the federal deduction, or are limited to $250 per acre of land under easement, whichever is less. A South Carolina taxpayer can use up to $52,500 in credits each year. South Carolina offers an additional incentive for landowners. The state tax credits can be assigned, transferred to others and sold. According to the 2000 National Land Trust census, over 71,000 acres of land in South Carolina are under conservation easements.

More than 1260 land trusts across the United States rely on conservation easements as an effective tool for protecting farmland, open space and natural areas. The Chattooga Conservancy is a land trust and eligible to hold conservation easements. The National Land Trust Census of 2000 reported that more than 6.2 million acres of land have been protected by land trusts. This equals an area twice the size of Connecticut. Over forty percent of those acres have been protected by conservation easements. Conservation easements grew from 450,000 acres in 1990, to 2.6 million acres in 2000, an increase of 475%. There are more than 11,6000 easement agreements between land trusts and property owners.

Significant public benefits can accrue from conservation easements, even though they are placed on private land. They protect the future of small farms and ranches, keeping land in traditional uses. Conservation easements have been used to buffer national parks, such as Glacier and Yellowstone, and other public lands, preserving scenic entrances and expanding wildlife habitat. Historic properties can be maintained and serve to enhance the quality of life and preserve heritage. Water quality can be improved by protecting watersheds and aquifers. Conservation easements can protect and improve a community’s scenic beauty, which promotes community pride as well as tourism.

Here in the watershed an effort is underway now to use conservation easements to improve this area’s beauty. In Clayton, Georgia the recent, highly visible impact from construction on Stekoa Creek has prompted the alarm of local citizens who are concerned about a negative effect on the economy, want to improve the aesthetics of Stekoa Creek, clean up the water and establish a greenway through the city along the creek (See article on Stekoa Creek in this issue). Responding to community interest, the City of Clayton recently stated that they would accept land donations for the purpose of creating a greenway along Stekoa Creek, with the Chattooga Conservancy holding the conservation easements. A committee formed of concerned citizens and the Conservancy is working hard to try and make the greenway a reality. This proposed greenway is an excellent example of how conservation easements can potentially benefit both the community and landowners who donate the easements.