Even the most experienced land buyers may not know all of the pros and cons of conservation easements.
In fact, we didn’t know a lot of what is covered below until we began researching this blog post!
But, to start with, a conservation easement is a voluntary agreement that permanently limits the use of the land to protect its conservation values.
Placing a conservation easement on a piece of land allows the owner to continue to control it (but usually not develop it) and also take advantage of a tax deduction.
This deduction is calculated according to the value that the land would have had if it had been developed.
In general, the limits of a conservation easement persist even if it is passed to an heir or sold in a sale.
Now, conservation easements have gotten quite a bit of notice in the past four years.
This is, in part, because of President Donald Trump.
He created a conservation easement for his Mar-A-Lago estate in 1993 and has popularized this structure.
When the property was appraised at $25 million in 1993, he donated an easement prevented him from selling antiques inside the historic buildings or adding more buildings to the compound.
This easement ultimately reduced the valuation of Mar-a-Lago to $19.25 million.
President Trump received a tax deduction for the difference of $5.75 million once the easement was in place.
See the benefit?
This is reportedly a tried and true tactic of the real estate tycoon turned politician.
Conservation easements alone have generated $100 million in write-offs for President Trump.
If you’re looking for the same benefits for your property, what are you waiting for?
Start by watching this video:
Then, you can read about the top conservation easements pros and cons and decide if it’s for you!
Pros of Conservation Easements
You receive a tax deduction
The main benefit of a conservation easement (aside from protecting the land!) is the tax deduction you’ll receive.
Typically, you can deduct 50% of your income for 16 years up to the appraised value of the easement.
So, if you make $60,000 a year, you can deduct $30,000 for 16 years.
This results in total deductions of $480,000.
However, if the appraised value of the easement is less than $480,000, the total deductions will be capped at the value of the easement.
You can customize conservation easements to meet your needs
Initially, conservation easements sound like you’re giving up a lot of rights.
However, they’re not as inflexible as they may sound.
You can entirely customize the easement depending on your plans and goals for your property.
The goal of the conservation easement is for everyone to benefit – both you (as the owner) and the land trust or government agency.
One big pro is that you’ll still have flexibility and control over your property.
Public access isn’t created with a conservation easement
Some landowners opt for public access as a condition of their conservation easement.
However, this is a rare part of the process, and it is not in any way a “rule of thumb.”
If you’re concerned about public access being an obstacle in the conservation easement process, it isn’t a requirement of a conservation easement.
Ultimately, the easement will follow your needs as the property owners.
It won’t dictate what others can or cannot do on your property.
Simply put, your land is still private land.
You’re just preventing future development by foregoing future development rights on the land you already own.
You’re not in any way creating a public park or other recreational space.
An easement doesn’t give the government access to your land
This is another common concern!
Just because you’re creating a conservation easement, it doesn’t mean you’re giving the government direct access to your land (in most cases).
The majority of conservation easements are held by a non-profit land trust.
Non-profit land trusts are 501(c)(3) organizations designated by the IRS, so they have a similar role that other NGOs and tax-exempt companies do in that they provide charitable work.
The instances where a government entity holds an easement would be rare.
The most that would happen is that the government would scrutinize or audit your conservation easement transaction, yet that could also occur if you worked with a non-profit or made unusual changes to your financial profile.
Long story short?
A conservation easement isn’t “signing your land over to the government” by any stretch of the imagination.
You don’t have to sacrifice agricultural production
Some people shy away from conservation easements because they profit off of the land in the form of agricultural production or ranching.
However, this doesn’t mean you can’t have an easement at all.
If your property is productive in its current form, then you should absolutely keep it that way; just be sure to work it into your easement.
Remember, conservation easements can be flexible and work around your goals.
All the conservation easement does is prevent future development in other ways.
You can still work on the land in the way you’ve already been doing so as long as it’s outlined in your easement.
To qualify as a rancher or farmer, you must receive more than 50 percent of your gross income from the “trade or business of farming.”
The following activities qualify as farming:
- Cultivating the soil
- Raising or harvesting any agricultural or horticultural commodity
- Handling, drying, packing, grading, or storing on a farm any agricultural or horticultural commodity in its unmanufactured states (but only if the owner, tenant or operator of the farm regularly produces more than one-half of the commodity so treated)
- Planting, cultivating, caring, and cutting down trees for the market
If you meet this criterion and you want your conservation easement to reflect it, then it must contain a restriction requiring that the land remain “available for agriculture.”
It’s also worth noting that, if you qualify as a rancher or farmer, you may be eligible to receive tax deductions of up to 100% of your income in exchange for the conservation easement.
You can financially benefit from a conservation easement (even with a low income!)
Even if your income isn’t high enough to justify the tax benefits, you have options.
A conservation easement may still be a good option for you.
If your parcel of land has high conservation value, then a land trust may pay you for a conservation easement.
There’s a great benefit to the public in preventing land development in certain areas, which is why land trusts may buy the development rights from the landowner using private donations or grants.
While you may not get a tax credit or deduction, you’re getting cash in your pocket.
Some states will also provide conservation tax credits that can be sold for cash.
This allows a landowner to monetize his donation while also providing tax relief to high-income third parties who are willing to purchase the credits at a discount.
Both these routes are pros that you may want to keep in mind if you’re interested in conservation easements, but don’t necessarily have a high enough income to receive tax benefits.
Cons of Conservation Easements
The land trust will need to physically inspect your property
Some people don’t like having people on their land constantly.
The bad news is that your land trust will need to physically inspect your land at least once a year.
So, there will be a few inconveniences with a conservation easement.
The hidden pro?
You can make it a condition of your easement that your land trust doesn’t visit you repetitively to review the condition of the property.
Furthermore, most non-profits don’t have the resources to visit multiple times.
They’re unlikely to push this issue because they simply can’t dedicate the personnel.
If you’re sincerely worried about this, then be sure to negotiate your expectations upfront.
Otherwise, you’ll likely find that the once a year inspection is more than enough for the land trust and not all that inconvenient for you!
You can overstate the value of the conservation easement
To claim the tax benefits for a conservation easement (on both the state and federal level), you must file forms to document the transaction.
If the deduction is larger than $500,000, you must provide an appraisal along with IRS Form 8283.
Now, agencies are paying closer attention than ever before to ensure that values are not intentionally or accidentally overstated.
When going through the conservation easement process, you must have a defensible appraisal of the land in question.
So, not only will you have to pay for an appraisal of the property, but you’ll still have to actively avoid overstating the value of your conservation easement.
Both can cost you!
You may not qualify for a conservation easement
Did you know not everyone can take advantage of a conservation easement?
This is one of the largest cons of the entire process.
You can only take advantage of this easement if you meet one of these four categories from a financial standpoint.
The following is found in the IRS Code, Section 1.170A-14(d).
- You are preserving a relatively natural habitat of wildlife, fish, or plants
- You wish to preserve forests or agricultural lands that have open spaces
- You want to allow public access to a portion of your land
- You are protecting the property in response to a clearly delineated government policy that is identified in local open-space plans
In general, conservation easements must provide public benefits.
“Public benefits” include water quality, farm and ranchland preservation, scenic views, wildlife habitat, protecting endangered species, outdoor recreation, education, and historic preservation.
You can choose the incorrect land trust
Not all land trusts are created equal!
For every awesome land trust out there that will work with you every step of the way, there are equally awful land trusts.
Some land trusts want to create benefits that are mutually advantageous.
Others are inflexible and confrontational about your property.
This can put property owners in a tough situation, especially when you’re not familiar with the process.
Of all the conservation easements pros and cons on this list, this is one you can (hopefully) avoid based purely on research.
Land trusts are non-profit organizations that actively work to conserve land.
It is their job to ensure that all the restrictions described in a conservation easement are actually carried out.
The land trust will take legal action (if necessary) to enforce the easement.
Thus, it’s important to select the right land trust as you’ll work closely with them to ensure you’ve come to the right agreement and can move forward comfortably.
This is a big decision – don’t take it lightly!
First, choose a land trust that offers a proven understanding of forestry practices and agricultural issues.
After all, if this is their specialty, they should show it through their practices.
Next, work with a non-profit that is certified by the Land Trust Accreditation Commission.
Be sure to vet whichever agency you choose (not every land trust works for every single property owner!).
Doing your due diligence can pay off on this one.
And for other due diligence tips, you can watch our video below.
Your ability to use your property can change without a structured conservation easement
Sometimes you don’t know what you’ve got until it’s gone, and this is exactly what property owners realize when it comes to conservation easements.
Over the years, landowners have discovered that they’re unable to use their property the way they want after their conservation easement.
Even if you’re fully in control of the negotiation process and able to see what you’re getting before signing, you simply may not realize you may want or need something before the time comes.
Here are some examples of issues that have occurred with conservation easements.
- Restriction on wind turbines or other economically viable technologies
- Inability to use ATVs, snowmobiles, or other recreational vehicles
- No access to inspection records of your property
- Confidentiality breaches such as a public petition for structures or other land uses without your consent
Keep in mind that these issues are rare.
However, they do occur, which means they’re worth acknowledging during the negotiation process.
There may be a limited selection of buyers available
There are so many pros of conservation easements.
However, the relationship that a landowner has with a land trust often complicates the process of selling the property.
As a result, you may find that your pool of interested buyers is limited if you decide that you’re ready to move on from the property.
In some cases, future owners may want to develop the land, which won’t be possible.
In others, they may just want to avoid a third party in the mix.
You may encounter lender problems
Unfortunately, the banking community does not always understand the nuances of conservation easements nor conservation easement pros and cons.
Just like buyers, lenders often view conservation easements as a hurdle rather than something that benefits the property as a whole.
As a result, landowners have found that it’s difficult to refinance their property if it has an easement.
Or you may find that you have difficulty with your appraisal or bank terms with your lending agreement (if one is authorized at all).
Together, these obstacles make it challenging to buy or sell the property.
They may also increase the cost of these actions or make it hard to obtain future financing.
You may lose access to some rights
When you purchase land, you purchase different types of rights.
You may have surface rights, oil and gas rights, mineral rights, and even water rights.
When you create a conservation easement, you may lose access to certain rights.
While you’ll likely retain certain surface rights like farming and ranching, development is almost always limited.
Furthermore, surface mining is almost always off the table and the goal is to protect the land overall.
This can be frustrating for some buyers and even result in the value of your land decreasing to nothing.
There you have it!
All of the conservation easements pros and cons.
Overall, conservation easements allow people to protect the land that they love – especially private land.
This process provides numerous advantages but must be balanced with the specific disadvantages of each property and landowner.
Doing your due diligence and finding the right land trust are important parts of the process.
In the end, each property and conservation easement is unique, and you’ll want to thoroughly review the pros and cons to make sure it is right for you.
Did we miss anything? Let us know in the comments.
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Disclaimer: we are not lawyers, accountants or financial advisors and the information in this article is for informational purposes only. This article is based on our own research and experience and we do our best to keep it accurate and up-to-date, but it may contain errors. Please be sure to consult a legal or financial professional before making any investment decisions.