NC Mountain Real Estate Investment Resources
Understanding Conservation Easements
A conservation easement is a way for a landowner to permanently protect the environmental value of his or her Western North Carolina land while continuing to own it. It is a legal agreement between a landowner and a government agency or nonprofit organization that permanently limits development of the land. Even if an owner sells the land or passes it to his or her heirs, the conservation easement remains in effect. By donating a conservation easement in any of the Western North Carolina communities, a landowner may qualify for a variety of tax incentives.
The Purpose of a Western North Carolina Conservation Easement
The primary purpose of a conservation easement is to protect land, timber resources, and/or other valuable natural and native North Carolina resources such as wildlife habitat, clean water, clean air, or to provide scenic open space by separating the right to subdivide and develop on the property from the other rights of ownership. The landowner who relinquishes these "development rights" continues to privately own and manage the land and may receive significant state and federal tax advantages for having donated the conservation easement. In accepting the conservation easement, the easement holder (a not-for-profit conservancy organization or government agency) has a binding responsibility to monitor future uses of the land to ensure the terms of the easement are in compliance and to enforce the terms should a violation occur.
Qualifying For an N.C. Conservation Easement
Landowners who donate a "qualifying" conservation easement to a "qualified" land protection organization under the regulations set forth in 170(h) of the Internal Revenue Code may be eligible for a federal income tax deduction equal to the value of their donation. The value of the easement donation, as determined by a qualified appraiser, equals the difference between the fair market value of the property before and after the easement takes effect.
Qualifying – Did You Know the Conservation Easement Must Be:
b) Held by a qualified governmental or non-profit organization
c) Serve what is deemed a valid "conservation purpose”
Meaning the property must have an appreciable natural, scenic, historic, scientific, recreational, or open space value. As a result of new legislation signed by the President Bush on August 17, 2006 (H.R. 4 - The Pensions Protection Act of 2006), in 2006 and 2007, conservation easement donors may deduct the value of their gift at the rate of 50% of their adjusted gross income (AGI) per year. Further, landowners with 50% or more of their income from agriculture may be able to deduct the donation at a rate of 100% of their AGI. Any amount of the donation remaining after the first year can be carried forward for fifteen additional years (allowing a maximum of sixteen years within which the deduction may be utilized), or until the amount of the deduction has been used up, whichever comes first. After the end of 2007 the expanded federal incentives will expire if they are not reauthorization by Congress and the old rules (a deducted at the rate of 30% of AGI with only a five year carry forward) will be back in effect.
The Financial Incentives of a Western North Carolina Conservation Easement
Numerous tax incentives exist for donating a conservation easement in North Carolina. Theoretically, an easement reduces the development potential of a property, thereby decreasing its market value. Since resource conservation, even on private land, is in the best interest of the public at large, the market value of that reduction may be considered as a charitable donation by the IRS and by the NC Department of Revenue.
Please be advised, we are NOT Tax Attorneys and it is recommended you speak with your financial planner, accountant or attorney prior to making any land offers to purchase for conservation easements.
In general, the IRS allows the donor of a qualified conservation easement to take an income tax deduction for as much as the full value of that donation, limited to 30% of the donors adjusted gross income, over the course of six years.
The N.C. Department of Revenue allows easement donors to claim an income tax credit for up to 25% of the value of their donation, capped at $250,000. Any unused portion of the credit may be carried forward for five succeeding years.
The Impact on Estate Taxes
A conservation easement may also significantly reduce the estate taxes that must be paid by the heirs of the property. This is especially valuable for families that have land as a significant portion of their net worth. Furthermore, legislation passed in 1997 may allow the remaining value of land protected by conservation easement to be reduced by an additional 40% for the calculation of estate taxes.
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To arrange a no-obligation consultation to explore your conservation easement purchase options or to learn more about all the benefits to conservation easement ownership, simply, contact us. You have our commitment to provide a superior level of transactional knowledge, and service to conservation buyers to enable you to reach your multiple goals of protecting the land, and wildlife all while securing maximum financial benefit.