Montezuma Land Conservancy, Cortez, Colorado

... permanently protecting important open lands in partnership with landowners, in order to conserve agricultural, natural, and scenic open space resources ...

CONSERVATION EASEMENTS

What is a conservation easement? A conservation easement is a voluntary agreement made between a landowner and a qualified conservation organization such as the Montezuma Land Conservancy. The easement protects land with conservation values that are significant to the public—for example: agricultural land, significant wildlife and/or plant habitat, and scenic open space.

Conservation Values are defined by the Internal Revenue Service as:

the preservation of open space (including farmland or forest land) for scenic enjoyment or in pursuance of an adopted governmental conservation policy, and in either case, where such preservation is for the benefit of the general public;
the protection of relatively natural habitats of fish, wildlife, plants or similar ecosystems;
the preservation of historically important land areas and buildings;
the preservation of outdoor recreational areas for the education of the general public (only if the landowner chooses to allow public access, or the easement is on a public piece of property. Montezuma Land Conservancy does not require public access on its conservation easements).

To understand how conservation easements work, think of owning land as owning a bundle of rights. A landowner can give away or sell the whole bundle or just one or two of those rights—the right, for example, to subdivide the land. Exactly what the landowner gives up, and what she or he keeps, is spelled out in the terms of each conservation easement. The landowner retains all other rights to the property and continues to own and use the land.

Conservation easements are extremely flexible and tailored to the individual property and the landowner’s wishes for the land. An easement can protect any or all of conservation values that the landowner chooses: farm and ranch land, water rights, wildlife or plant habitat, and scenic views. The conservation values are protected by limiting the subdivision and development rights on the land. In return, the landowner gets the satisfaction of having protected the land—and sometimes receives cash or important tax benefits as well. A conservation easement does not convey public access unless the landowner specifically requests it, nor does the easement convey ownership of the land to the land trust.

How restrictive is a conservation easement? An easement is as restrictive as the landowner wishes it to be, while ensuring conservation values or public benefit are protected. Sometimes this totally prohibits construction and sometimes it doesn’t, depending on the size and nature of the property. If the goal is to protect farm or ranch land and keep it in productivity, an easement may restrict subdivision and development on most of the farm or ranch while allowing for structures and activities necessary for and compatible with the agricultural operation. This can include additional homesites if necessary. If the goal is to preserve a pristine natural area, an easement may prohibit all construction outside of a pre-determined “building envelope” as well as any activities that would irreparably alter the land’s natural condition.

How long does an easement last? Only permanent (perpetual) conservation easements can qualify a donor for federal and state income and estate tax benefits. An easement runs with the land—that is to say the restrictions apply not only the landowner who executes the easement, but also any future owners of the land. The easement is recorded with the County Clerk and Recorder of the county in which the land is located, so that all future owners and lenders will learn about the restrictions when they obtain title reports.

Who may give an easement, and to whom can they give it? Any landowner may give an easement as long as the land has significant conservation values to qualify. If the land is owned jointly or partially all owners must consent to placing an easement on the land. If the property is mortgaged, the landowner will need to obtain an agreement from the lender to subordinate its interests to the conservation easement. If a donor wants to claim tax benefits for donating an easement, he or she must grant it to a private conservation organization that qualifies as a public charity under IRS Code 501(c)(3), or a public agency.

What does the land trust do? Montezuma Land Conservancy is here as a service organization to landowners. We visit with landowners to provide information and hear about their vision for their land. If landowners wish to, Montezuma Land Conservancy will assist the landowner will all phases of the conservation easement process and make sure that the easement is effective.

After a conservation easement is completed and recorded with the County Clerk, Montezuma Land Conservancy is responsible for monitoring and enforcing the development restrictions that the landowner chooses to place on the land. To do this, the land trust visits the easement once a year and meets with the landowner(s) at their convenience. The landowner and the land trust both check that the land remains in the condition prescribed by the easement.

Annual monitoring allows MLC to visit regularly with landowners, providing an opportunity to discuss the land, the conservation easement, and any needs, concerns or difficulties that the landowner may have. This regular communication helps to avoid misunderstandings and keeps new landowners informed. If a visit reveals that the easement has been violated, the land trust works first to find a cooperative solution with the landowner to address the violation.

How does an easement reduce my income tax? When a landowner donates a conservation easement, the IRS considers the donation a charitable gift, provided that the easement is perpetual and donated “exclusively for conservation purposes” to a land trust or public agency. This value of this donation can be deducted from a taxpayer’s income like any charitable gift to a non-profit organization.

If the easement does qualify as a charitable gift, what value is assigned to it? The easement value is the difference between the “before” and “after” values on the land. This value is determined by a qualified appraiser who establishes what the property is worth without a conservation easement on it (before value) and what the property is worth with a conservation easement in place (after value). The difference between these two values is the value of the conservation easement. In essence, the value of the conservation easement is the value of the “development rights”.

An example: A parcel has an appraised (fair market) value of $100,000. Mr. Price donates a conservation easement on his farm to a local land trust, and the easement restrictions reduce the parcel’s fair market value to $60,000. The value of the conservation easement, and therefore his charitable gift, is $40,000. The details of how this deduction may be used by the taxpayer have been changed by the Pension Protection Act of 2006. Please call MLC for more details.

Colorado State Tax Credit: If the land is in Colorado and the owner is a Colorado taxpayer, the donation may also qualify for a state tax credit. These tax credits are transferable for cash. Please see the document entitled FYI 39 from the Colorado Department of Revenue for details.

Estate Taxes: Conservation easements can also reduce federal estate taxes. Many heirs to large tracts of land—farmers and ranchers in particular—face monumental estate taxes when their land is assessed at fair market value. Even if the heir wishes only to keep the property in the existing condition, the federal estate tax is levied not on the value of the property for its existing use, but on the amount a developer or speculator would pay. The resulting estate tax can be so high that the heirs must sell the property to pay the taxes. With a conservation easement on the land, however, the estate’s executor must value the land subject to the easement restrictions. There is also an additional estate tax exclusion for estates with lands subject to conservation easements. The difference can mean hundreds of thousands of dollars of estate tax savings for the heirs. As with all tax planning, the donor should always consult a qualified tax counsel.

Landowners can donate an easement during their lifetime, or by bequest in their wills. If donated by will, the estate’s value will be reduced by the value of the easement specified in the will.

Property taxes: If the property is being taxed at the agricultural rate at the time the easement is placed, the landowner may continue to receive the favorable agricultural tax treatment depending on the size of the property and whether it has residential buildings.