With contributions from Eric Florence and Vincent Lu

Jan and Eric own a beautiful and largely undeveloped coastal property in Washington State, not far from a national park. For decades they’ve enjoyed sharing their land with the Great Blue Herons that nest there. Lately, new developments are springing up nearby and the couple wants to ensure that their land is a safe haven for these birds, even after they’re both gone.

Enter the conservation easement.

Under the terms of a qualified conservation easement, Jan and Eric can potentially restrict certain development, earn federal and state tax benefits and continue to own the property—even sell or bequeath it.

A conservation easement is a legally binding agreement between a property owner and a qualified organization—either a land trust or a municipal, county, state, or federal governmental agency—that permanently protects land or an historical property for future generations.

It does so by restricting the development and future use of all or a portion of the property in order to protect specified conservation values.

The Basics

With a conservation easement you, as property owner, retain ownership of your property subject to the restrictions in the conservation easement. You are still responsible for all liabilities and costs, including maintaining the property. You can even sell the property or bequeath it to your heirs, subject to those same restrictions. And you may qualify for a charitable deduction.

As an example of an easement, you might restrict any future development on your property to ensure the natural habitat of a threatened species of bird or plant.

When you place restrictions on your property under the terms of the agreement, you are actually conveying the associated rights—in this case, the right to develop the property—to the qualified organization. That land trust or government assumes responsibility for ensuring compliance with the terms of the easement—i.e., that the property is not developed, threatening the species both parties have agreed to protect. The qualified organization commits to stewarding the property in perpetuity.

Types of Easements

From the perspective of the IRS there are four general types of conservation easements, as follows. The rules to qualify for each can be quite detailed and complex, particularly for historic structures.

Natural Habitats and Ecosystems

A natural habitat easement protects a significant and relatively natural habitat of fish, wildlife or plants, or similar ecosystem.

Such habitats provide refuge for rare and threatened or endangered species. Although qualification depends on the specific facts and circumstances, ordinary properties with more common fish, wildlife or plant ecosystems generally do not qualify as natural habitat easements.

This easement should be consistent with the qualified organization’s exempt purpose.

Examples of this type of conservation easement include a relatively undeveloped island or coastal area that supports the viability of a nearby wildlife refuge, or land with a man-made lake that provides a natural watering and feeding area for a threatened species.

Outdoor Recreation or Education

An outdoor recreation easement preserves land for substantial and regular physical access by the general public for outdoor recreation or education.

Examples include land surrounding a lake that provides lake access for boating or fishing, or land that includes a popular hiking trail.

Open Space

An open space easement protects property—including farm and forest land—either for the scenic enjoyment of the general public or pursuant to the conservation policy of a federal, state, or local government.

This easement is also determined based on facts and circumstances. It does not require that the public be able to physically access the property. It does, however, require that the public benefit be a significant one. It should also be consistent with the qualified organization’s exempt purpose.

Examples include land that provides a scenic outlook viewable from a park or historic structure or property that, if developed, would mar the popular view of a rural or urban landscape.

Historically Important Land or Structure

An historically important easement preserves important land and certified historic structures.

Historically important land is an independently significant area that either meets the National Register Criteria for Evaluation or contributes to the historic/cultural importance and structural integrity of a certified historic structure.

A certified historic structure is one listed on the National Register or is located in a registered historic district and certified as being of historic significance by the Secretary of the Interior. It may be a personal residence or commercial structure. This easement type includes a façade easement that protects the entire exterior of an historic building.

Examples include a Civil War battlefield or an important archaeological site.

Tax Benefits

You may benefit from a federal tax deduction and reduced estate and property taxes as a result of a conservation easement. Exactly how much depends on your personal tax situation and the value of your conservation easement—calculated as the difference in the underlying property’s fair market value before and after easement restrictions are applied.

Federal Charitable Deduction

The federal tax rules allow for a charitable deduction when you contribute a real property interest to a qualified organization under a perpetual conservation easement.

Generally, the deduction is equal to the conservation easement’s fair market value, based on the change in the property’s fair market value as a result of the easement. All easements, including façade easements, require an appraisal from a qualified appraiser.

Conservation easements are granted preferential treatment under the tax law. You are allowed a charitable deduction of up to 50 percent of adjusted gross income for conservation easement donations. However, your other allowable charitable deductions are counted first against this 50 percent limit, potentially reducing the amount you can deduct for the conservation easement in the year you donate it. You can generally carry any unused amount forward for 15 years. Other noncash contributions are limited to 30 percent of adjusted gross income and both cash and noncash contributions can only be carried forward for five years.

Partnerships and LLCs pass the deduction through to their partners and members.

For C corporations, the deduction is limited to 10 percent of taxable income.

Reduced Taxable Estate

Your conservation easement reduces the value of your property, and therefore your estate.

If your estate is sufficiently large to be taxable, the easement can reduce your estate tax. If the value of the easement is large enough, it is possible that your estate falls below the threshold and is no longer subject to estate tax.

Reduced Property Taxes

Property taxes are levied based on a property’s assessed value. By placing restrictions on your property, the conservation easement may reduce its value. As a result, the conservation easement may reduce the property taxes you pay each year.

Other Benefits

A conservation easement ensures that the property owner’s conservation-related motives are met in perpetuity. As such, it represents the most important benefit from the perspective of many property owners.

Potential Risks


To ensure the contribution is made in perpetuity as required by law, any conservation easement for property subject to a mortgage must subordinate the lender’s interest to that of the qualifying organization—even in the event of foreclosure. This requirement doesn’t prevent the underlying property from being foreclosed upon and sold, but it does require that the qualifying organization be compensated from the proceeds.

If the easement fails in this regard, you lose your charitable deduction.

If at all possible, it is generally preferable to pay off the mortgage on your property before establishing the conservation easement.

State Law

Conflicting state laws can also prevent you from claiming your charitable deduction. As one example, North Dakota law limits conservation easements to 99 years. As easements must be created in perpetuity to qualify for a federal tax deduction, conservation easements for property in North Dakota cannot qualify.

At this time, there are no known conflicts in Washington State.

Appraisal and Substantiation

The IRS can and has disputed the fair market values claimed for a number of past conservation easements. It’s typically considered to be the primary difficulty with regard to claiming a deduction for these easements.

Disputes have arisen about the amount and timing of the appraisal and the appraiser’s qualifications. As a result, it’s essential to engage a qualified appraiser, and perhaps more than one if large property values are involved.

It’s also vital to ensure that you’ve satisfied all of the IRS’ stated requirements, including the requirement that you obtain a contemporaneous acknowledgement of your gift from the donee.




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