Keep Your Property Green and Get Tax Breaks Too

If you’re a nature lover with a large parcel of property there may be a way to keep your land undeveloped and pocket major tax breaks at the same time. By donating a “conservation easement” to a charitable organization, you agree to protect the land’s natural beauty while getting a tax deduction now and estate tax benefits later.

For example, you might donate the use of your land for outdoor recreation, the study of a natural habitat, or the preservation of open space or a historical structure.

There is one catch: The easement must be granted “in perpetuity,” meaning that it lasts forever.

Here’s a quick four-step guide to conservation easements:

• Step 1. Have your property appraised.
• Step 2. Make an agreement with a qualified organization to restrict future development.
• Step 3. Have the land appraised again (the value will be lowered by the conservation easement).
• Step 4. Take a charitable deduction for the difference between the original and the lower appraisal.

How it works: Let’s say you own 25 acres of property, appraised at $500,000, behind your home. You like to sit by the window and watch deer. But residential development in the area has picked up recently and you’re worried that your land will soon be plowed down and covered with homes.

So you arrange to put your property under a conservation easement. As part of the deal, future development is limited to a few homes on large lots, rather than dozens of homes stacked end-to-end. (Easements typically limit the number and location of new buildings and the activities allowed on the land.)

You then get a new appraisal that puts the value of the property at $400,000, due to the reduced future development rights. In return, you get a $100,000 charitable deduction, which can be spread over six years if you run into the annual limits on charitable write-offs.

An added bonus: The value of the land subject to the easement is reduced for estate tax purposes.

And for all of this, you give up little. You still own the land and you can continue watching the deer. In theory, your property has lost value because you can’t sell it to a developer to subdivide it into small lots.

In reality, however, your property is likely to hold its value or appreciate because future buyers will prize the fact that little or no development will be permitted. What’s more, you can pass the property on to your heirs with the conservation easement in place.

Expanded Estate Tax Break for Easements

A tax law passed in 2001 extended the estate tax break for conservation easements to more landowners. Previously, the land had to be located in close proximity to a metropolitan area, urban national forest, national park or wilderness. But for decedents dying after 2000, this requirement was eliminated. Result: Your estate can qualify for a conservation easement no matter where land is located. For more information, consult with your estate-planning attorney.