Financial & Tax Information

Financial & Tax Information

Funding for the protection of private lands can come from a number of sources. In general, the considerations fall into three broad categories:

(1) How the costs of a conservation transaction are paid and who pays them;
(2) whether the landowner will be paid for their land or an easement on their land; and
(3) what types of tax benefits a landowner might realize by protecting land, either by easement or donation, and the IRS rules that accompany such a decision.

Costs of a transaction

A variety of costs are involved in establishing a conservation easement on one’s land. The land trust will have staff, and sometimes third party costs, in the legal and other work to prepare an easement and other work necessary to ascertain the landowner’s intentions and needs. The landowner will have their own legal and financial advisor costs, an appraisal if a tax deduction is sought, and sometimes other costs like a survey. A baseline report of the property’s condition at closing will be required so that the land trust, when monitoring the easement over time, can compare the current condition of the land to what it was at closing.
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Typically, the largest component of the land trust’s cost is its obligation to enforce the easement through stewardship and monitoring, typically on a perpetual basis. The land trust will have the obligation of ensuring, by actual and virtual visits, typically on an annual basis, that the conservation values of the land remain protected. Most land trusts have a formula they use to determine their ongoing costs to steward, based on many factors, including size of land, its natural resource characteristics, any special conditions, building areas the landowner wants to retain, and more.
Many times, the costs that the land trust incurs in completing the transaction, and the costs of ongoing stewardship, are paid by the landowner at the closing of the transaction. Many of these costs may be tax deductible based on the landowner’s particular situation. But there are also state and federal programs that may fund such costs, if a piece of property falls within the scope of a publicly funded conservation program. And sometimes foundations and other grantors may have funds available for a particular area or type of property they want to see protected, and some land trusts have their own funds for such situations, or if the landowner is otherwise unable to afford the costs associated with the transaction.
Most land trusts have information they share with landowners that go into great detail about the transaction costs and how they are customarily allocated. Those often become an important part of the early discussions with landowners, well before a transaction reaches the closing stage.
A charitable donation of a landowner’s property outright to a land trust will have many different variations to the structure and the costs involved. With the outright donation, the landowner is giving up possession of the land, either immediately or down the road. Sometimes a landowner may retain a life estate – remaining on the land until death – or set forth a time certain in the future when the land will pass to the land trust. Consequently, it is difficult to provide any general rules about such donations, which will require significant discussions between and among landowners, their advisors and the land trust.

Payment for Easement or Land

While many conservation easements are donated by a landowner to a land trust, some are sold to the land trust. In this kind of transaction, the landowner will be paid the value of the conservation or, more commonly, a portion of the easement value. This type of transaction may be desirable when a landowner cannot benefit from the tax advantages of a donation, or when they might only benefit from donating part of the value of the easement. Whether a land trust can pay for the easement will depend on their mission, their funding and the importance of the land given its conservation value. Landowners can also sell their land outright to a land trust.
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Tax Aspects of Conservation Transactions

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The tax treatment of conservation transactions, and in particular conservation easements, can be very complex from a federal and state tax perspective. That being the case, land trusts always recommend that landowners have their own legal, or accounting, or both forms of consulting advice prior to finalizing conservation transactions. Land trusts may have information to share with landowners about the general types of tax treatment, but do not represent the landowner, are not privy to all their personal and financial concerns, and so cannot vouch for any particular treatment in a given specific situation.

• Conservation Easements

Congress has adopted legislation allowing for charitable deductions for the granting of conservation easements, and the law and IRS regulations have very specific and stringent rules for those easements that qualify.
In general, the value of a conservation easement represents the difference in the value of the property before it is restricted by the easement and after. If IRS requirements are met, the landowner who grants a conservation easement to a land trust may be able to deduct part of that value, and may utilize a multi-year period to maximize use of the deduction. And those with farm and ranchlands may have enhanced deduction opportunities.
As noted above, if the landowner contributes funds to the land trust for its costs, some of those funds may be deductible as well, including payment for the land trust’s ongoing stewardship duties, and some of the costs of the transaction. Some of these costs may not be as well, so again, it’s best if the landowner has an advisor knowledgeable about the rules.
States vary widely in terms of the tax deductions or credits they offer (beyond the federal deductions) for a landowner placing a conservation easement on their land.
Conservation easements may also serve as an effect estate tax planning tool for landowners, as the easement reduces the remaining value of the land that could be included in the landowner’s estate. Again, an advisor is highly recommended for these kinds of decision.
There is a wide variety of programs that may provide financial payments for the costs of a conservation transaction, or for the easement itself. Consult the programs that are referred to under the ____LINK HERE tab, or reach out to MLTC or a member land trust with any of your questions.

• Conservation Donations

A landowner may receive a charitable deduction for donating their land outright to a land trust, and helping the land trust defray the costs of such a transaction may be deductible as well. Or a landowner may make a delayed, irrevocable gift that would transfer the property to the land trust at some point in the future. Every situation is different and dependent on the landowner’s particular tax and financial condition.

The Missouri Land Trust Coalition (MLTC), an unincorporated association of land trusts and their partners across Missouri.

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