Introduction to Conservation Easements and Potential Financial Incentives, by The Piedmont Environmental Council

PIEDMONT ENVIRONMENTAL COUNCILPIEDMONT ENVIRONMENTAL COUNCILPhoto by Ken Garrett
Michael Kane
Land Conservation Officer
Loudoun & Northern Fauquier Counties
Financial incentives available
for preserving land with
Conservation Easements

PIEDMONT ENVIRONMENTAL COUNCILPIEDMONT ENVIRONMENTAL COUNCIL

PIEDMONT ENVIRONMENTAL COUNCIL

Why Conserve Our Land and Resources?
Our land provides us with….
 A renewable source of
nourishment & fiber
 A sustainable natural
environment
 Jobs and Rural economies
 Recreation & Tourism
 Historic and scenic places to
experience and learn.
Our land connects us to our past and
sets the course for a prosperous future.

What is a Conservation Easement?
• A voluntary agreement between a
landowner and a land trust or
government agency to limit future
development of property.
• Easement must advance a
conservation purpose and result in
public benefit.
• Landowner is giving up a “stick” from
their property rights bundle.
• Easement must be consistent with
local Comprehensive Plan.
• Easement is forever.

• Comprehensive Planning
• Rural / Agricultural Zoning
• Conservation Overlay Districts
• Land Use Assessment / Taxation
• Agricultural / Forestry Districts
• Historic Districts / Scenic Corridors
• Parks & Natural Areas acquisitions
• Family land transition and estate
planning
• Conservation Easements
The Land Conservation Toolbox—A Sampling

Conservation easements typically include terms that:
 Limit subdivision of property
 Limit intensive industrial &
commercial activities (other than
agriculture)
 Call for management of forests
 Protect water with riparian buffers
 Limit blasting & mining
 Trash & Dumping
 Limit signs & billboards
But…easements are flexible tools that recognize that no
two properties are the same.

What are some of the myths about conservation easements?
 You have to grant public access to your land.
 You can’t sell your land.
 You can’t continue to farm, hunt, fish.
 You can’t harvest timber on your land.
 You can’t pass your land on to your kids.
 Easement holder will tell you what to plant.
 One size fits all.

Who accepts / holds easements?
• Local governments, for instance those
with Purchase of Development Rights
(PDR) Programs
• State agencies (VOF, DOF, DHR)
• Certain non-profit organizations that
meet state and federal requirements
(PEC, Land Trust of Virginia, Northern
VA Conservation Trust, The Nature
Conservancy).

Protected Land in the 9 County PEC Service Area
1994

2004

PEC and partner organizations
have helped preserve over
375,000 acres in the PEC nine
county service area.
2014
• 1,558 miles of streams and rivers
• 9,089 acres of wetlands
• 176,660 acres of prime farming soils
• 175,786 acres of forests
• 102,188 acres along scenic byways
• 120,749 acres in historic districts
• 27,708 acres of Civil War battlefields

Why do people give easements?
Three primary reasons….
1. They love their land

 And…because they love their land and want to protect
it for the next generation.
 And…because they may be eligible for:
o Federal Tax Deduction – full or partial easement donation
o State Tax Credits – full or partial easement donation
o Property Tax Benefits
o Local Purchase of Development Rights programs
Why do people give easements? (Part II)

$3,000,000
Value of property prior to protecting
land with a conservation easement
- $2,100,000
Value of property after protecting land
with a conservation easement
= $900,000
Value of conservation easement
(i.e. loss of property value due to easement)
(potential value of tax deductible charitable gift)
THIS IS A HYPOTHETICAL EXAMPLE ONLY AND IT IS NOT INTENDED TO BE TAX OR LEGAL ADVICE. CONSULT
YOUR OWN LEGAL OR FINANCIAL ADVISOR ABOUT YOUR PARTICULAR SITUATION.
Calculating the value of an easement

Size of federal deduction = easement value. But, use of
the deduction is subject to certain rules:
 Donation can be used to deduct up to 30% of
Adjusted Gross Income (AGI)
 Unused donation can be carried forward and used
on future taxes for 5 years (year 1+5 = 6 years).
 Cash value of deduction is going to be determined
by your own financial situation / marginal tax rate
 See example if AGI = $200,000
Federal Income Tax Deduction

Virginia Land Preservation Tax Credit (LPTC)
 CREDIT is different than deduction
 $1 of credit can be used to pay $1 of VA Income Taxes
owed.
 Easement donor can claim credit = 40% of the land or
easement donated.
 Can use the credits in the year of the donation plus 13
additional yrs.
 Individual taxpayer limited to using $20,000 per year in
2015-16, $50,000 per year thereafter. (new for 2015)
 Can sell unused credits to other taxpayers.
Virginia is one of the few states that offer a state income tax
CREDIT for conservation easement donations

“Run the Numbers on the Incentives” – An Example
Assumptions:
Before Easement Value $3,000,000
After Easement Value $2,100,000
Easement Value $ 900,000 (30%)
Adjusted Gross Income--Married $ 200,000/year
State Tax Credit (40% of $900,000 donation) $ 360,000
Potential Value of Incentives
Fed Income Tax Savings (over 6 yrs): $ 98,784
VA Income Tax Savings from Fed Deduction: $ 20,700
Income Tax Savings using LPTC $ 140,300
Sale of remaining $219,700 in credits @ .80 $ 175,760
--less VA Transfer Fee $ 10,985
Total $ 424,559

Virginia Land Preservation Tax Credit (LPTC)
Virginia is one of the few states that offer a state income tax
CREDIT for voluntary land conservation donations
Since 2000….
• Over 2,500 donations of land
or conservation easements
• Over 540,000 acres
conserved using the LPTC
• Over $1.2 Billion in LPTC
credits issued
In 2015…..
$75 million is available for land
and conservation easement
donations through LPTC

Purchase of Development Rights (PDR) Programs
• Fauquier, Clarke, Rappahannock,
Loudoun, and Albemarle in PEC
area
• PDR programs typically rank
applications, with focus on
farmland preservation
• Due to limited funding, “bargain
sales” are common
• 22 programs statewide
Under PDR programs, landowners voluntarily sell—rather
than donate—a conservation easement to local jurisdiction

“Run the Numbers on the Incentives” – An Example
Assumptions:
Before Easement Value $3,000,000
After Easement Value $2,100,000
Easement Value $ 900,000 (30%)
Adjusted Gross Income--Married $ 200,000/year
PDR Program funding (8 Division Rights @ $25K) $ 200,000
State Tax Credit (40% of $700,000 donation) $ 280,000
Potential Value of Incentives
PDR Program funding (8 Division Rights @ $25K) $ 200,000
Fed Income Tax Savings (over 6 yrs): $ 98,784
VA Income Tax Savings from Fed Deduction: $ 20,700
Income Tax Savings using LPTC $ 140,300
Sale of remaining $139,700 in credits @ .80 $ 111,760
--less VA Transfer Fee $ 6,985
Total $ 564,559

Getting Started—How do people give easements?
• Land Trust (or public agency)
• Legal Advisor
• Financial Advisor
• Qualified Real Estate Appraiser
• Tax Credit Broker
• Lender
Donating a conservation easement call for a team effort!
CONTACT PEC! We are here to assist you.

Professionals will help you…
Getting Started—How do people give easements?
• Determine if a conservation easement is right for your
situation
• Connect you with the organization with a mission that
matches your conservation goals
• Run those numbers….on the financial incentives
• Understand the legal, technical, and financial implications
of giving an easement
• And, finally, provide advice—after the easement is
complete—on the managing your property’s unique
resources

Benefits to the Landowner
• Permanently protect the land you love
• Extract some of the land’s cash value now without
having to sell any land fee simple
• Retain the right to own & farm the property
• Maintain the ability to sell the property (subject to
easement restrictions)
• Assist in estate planning
• Ability to take direct action that can benefit the
entire community

Upcoming PEC Workshop on Estate Planning

Gilberts Corner
Loudoun County, VA

Introduction to Conservation Easements and Potential Financial Incentives, by The Piedmont Environmental Council

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Introduction to Conservation Easements and Potential Financial Incentives, by The Piedmont Environmental Council