The Importance of Conservation Easements
Conservation Easements: Tax Benefits and Protection for Farmland and Open Space
Story and photos by Karin Deneke – How can we protect our productive land and open space from the never-ending encroachment by urban sprawl, especially prime farmland on the fringes of our great cities? There are options available for landowners interested in preserving their homesteading land and farm for future generations. One answer is conservation easements: legally binding contracts, covering in perpetuity, various types of land uses. Conservation easements can be sold or donated, involving private conservation organizations or public agencies. There are also conservation easement tax benefits for donated properties, given in form of federal income tax write-offs.
Conservation easements are more important than ever. Within the past three decades alone, urban sprawl in the United States has swallowed up more than 24 million acres of productive land – an area that would cover both the states of Indiana and Rhode Island. Where once crops were harvested, row after row of suburban homes have sprung up putting an end to future farming activities. And to make matters worth, our growing population has exploded to a staggering 324 million plus. Even though improved cultivars and new technology lead to increased yields, eventually our food production capabilities will not be able to keep pace with our population growth. The loss of cropland is not an immediate threat, but it is definitely a growing concern for the future.
Prime farmland in the path of development is found in most states, the majority east of the Mississippi. The state of Texas ranks number one in loss of farmland to development, followed by North Carolina, Ohio, Georgia, Louisiana, Florida, Illinois, Tennessee, Indiana, and California.
Conservation Easements for Farmland
For instance, under the PACE program (PURCHASE OF AGRICULTURAL CONSERVATION EASEMENTS) landowners receive payment based on soil quality and threat of development, for placing an Ag easement on their land. Farmers and ranchers signed up in a conservation easement have the right to live on their land, work it or raise their livestock just as they did before the agreement. They can hand the property down to the next generation, or sell it, as long as the conservation easement remains in place and no breach of land use occurs.
By any means, this is not an easy decision to make and should be preceded by considerable soul searching and or repeated discussions with family members or heirs. Much is at stake, once you have signed away your right to sell your land for future development.
Be aware, years down the road your not so conservation-minded neighbors could be selling their tillable land for big bucks to a subdivision contractor, and you wind up being surrounded by rows and rows of suburban housing. On top of that, you could be dealing with repeated complaints pertaining to the noise and dust created by your tractors and farm machinery, or the odors even small livestock barns can create. It has happened in the past and unfortunately has triggered legal action.
Under a conservation easement, which grants the farmer/rancher the right to reside on, and use the land as previously, comes the obligation to act as a good steward of the given property, and thereby responsibly managing his/her land and water resources. The National Conservation Easement Database (NCED), as of July 2016, lists 116,864 recorded easements, a total of 24,557,278 protected acres — contracts implemented by state and local governments, as well as private conservation organizations.
Conservation Easements for Open Space
Just as for cropland, conservation easement contracts are taken out on scenic or environmentally fragile properties, large or small. And again the same rights and restrictions apply as for farmland. Owners can reside on the land, or continue a previous land use, and when meeting federal and state criteria, they are eligible to earn tax benefits in compliance with IRS rules. Most open space easement donations take place in less populated parts of the western states, where it is not unusual to hear of thousands of acres being donated to a government agency.
In 2012 a respected conservationist, and hedge fund billionaire Louis Bacon donated an easement of 90,000 scenic acres — part of his 171,000-acre ranch in south-central Colorado — to the U.S. Fish and Wildlife Service — a perfectly legal move that was praised highly by the local community.
The easement allows Bacon continued use of the land such as timbering, ranching and/or hunting, but forbids the siting of significant structures or housing developments, and qualifies for a conservation easement tax benefit under IRS rules. The ranch was purchased by the billionaire from Malcolm Forbes of Forbes Magazine fame, in the year 2008. The vast and scenic property features pasture, high desert, forest land, rugged mountain peaks, and a large wildlife population.
The land had been in the hands of the Forbes family since the year 1969. A portion of the ranch, when Forbes owned it, was managed under the Conservation and Ranching for Wildlife Program then supervised by what is now known as Colorado Parks and Wildlife. It began as a pilot program in 1986, to better manage wildlife populations and to provide Colorado residents with the opportunity to hunt on participating private ranches free of charge — as long as a license was obtained through Colorado’s annual hunting license drawing process.
This 90,000 easement property, donated by Bacon in 2012 to the US Fish and Wildlife Service is hailed as the largest easement donation to a US government agency up to date. It continues Forbes’ Ranching for Wildlife program making available a number of Big Game hunting licenses each year.
It is not unusual to learn of large acreages of open space being donated to the conservation easement program. The owners of these easement properties are not required to allow public access; some don’t and others do.
Unfortunately, there are times when open space easements are donated primarily for the advantage of federal income tax write-offs. These donations can raise eyebrows by the IRS, and eventually, may result in lengthy audit delays.
Here is how it works. The donated property is appraised. The donee then can claim the established loss in market value as a charitable donation. However, agricultural land can be claimed up to 100 percent, while conservation easements on Open Space earn a lesser rate. If the donor is unable to use the entire amount in one tax season, it can be carried forward for the next 15 years. Some states, including Colorado, set annual limits.
Conservation easements were created for the benefit of the citizens, whether it pertains to farm and ranch land protection, or the preservation of environmentally fragile, or scenic areas. We must make sure our cropland prevails, and our open spaces remain unspoiled for the enjoyment of future generations.
“I see an America whose rivers and valleys and lakes — hills and streams and plains — the mountains over our land and nature’s wealth deep under the earth, are protected as the rightful heritage of all the people.” FDR 1940