What Is A Conservation Easement?
A conservation easement is created by way of a process of placing restrictive covenants on real estate in perpetuity, often resulting in a charitable contribution tax deduction if certain rules and regulations are followed and certain requirements are met. The Internal Revenue Code (“IRC”) allows for a federal tax deduction on the value of a qualified conservation contribution to a “qualified organization” (as defined under the IRS Publication 526 under Qualified Conservation Contribution) in order to encourage land owners and other parties to take action to preserve such land and property. In most cases, the amount of the tax deduction is equal to the value of the property before it is “burdened” by the easement minus the value of the property after the easement is placed upon the property thereby restricting its uses and diminishing its value. The before and after values of the property is established by qualified appraisers as defined under the Internal Revenue Code – these are independent appraisers who have completed the IRS course for certified conservation easement appraisers. Essentially, a tax deduction is granted to a property owner in an amount equal to the “lost value” (i.e., the decline in the value of the property that resulted from the permanent restrictions against future development).
Recent efforts by both the U.S. House of Representatives and the U.S. Senate resulted in the current law which was passed on December 18, 2015 with overwhelming support making the tax deduction and carry forward permanent. It provides that the tax deduction derived from purchasing an interest in a qualified conservation contribution may be used by an investor for up to 15 years. Further, the conservation contribution tax deduction is generally limited to 50% of a property owner’s adjusted gross income (“AGI”); however, excess tax deductions may be carried forward up to 14 years after the initial deduction (15 years total). IRC §170 contains the rules that govern income tax deductions for charitable contributions including qualified conservation contributions.
We believe an absolutely imperative consideration for a land transaction promoted by Conservation Easement Consultants, LLC, is a careful, comprehensive, and conservative qualified appraisal performed by the best appraisers in the business. We work with renowned appraisal companies that have a proven track record of handling volumes of conservation easement transactions that have resulted in millions of dollars of tax deductions on hundreds of thousands of acres of land. One of the lead appraisal companies in our team has done a particularly tremendous job developing conservation easement appraisals and has successfully defended a number of valuation challenges that have often resulted in no reduction in value and when "successfully" challenged have resulted in only minimal reductions in value. With the goal of arriving at conservative valuations that are likely to withstand IRS scrutiny and valuation challenges, our strategy is to use the lower of not less than two appraisals to determine the value of the property for each and every transaction. We believe that this is a best practice appraisal policy that will result in stronger deals for our investors and landowners.