If you own land, maybe you should consider letting people walk around on it anytime they want. And if you promise to never cut down any trees or build anything on it, you may be able to grant a conservation easement and receive a substantial tax deduction, while still owning your property, retaining certain uses, AND protecting the environment.
Now THAT’s what I call a perfect union of horse (capitalism) and rider (conservation)!
Conservation easements can be a pretty sweet deal, generating tremendous federal tax deducations based on the difference between the land’s value before you granted the easement and after. A conservation easement deduction operates just like many other tax deductions:
- It can be used to offset income from other sources
- If you can’t use the entire deduction in a single year, it can potentially be carried forward to future years
Moreover, creating a conservation easement could reduce your property taxes going forward and perhaps even lower your estate taxes. Fifteen states, including Georgia, offer some state tax benefits as well.
So how does it work? Let’s suppose you bought some acreage years ago and now operate it as a horse stable, boarding other people’s horses for a fee. Let’s further suppose that you’d be willing to create a conservation easement on the back ten acres, preserving that land in its natural state forever. You have a couple of appraisals done of the ten acres – both its pre- and post-easement values – and then deduct the difference on your taxes. You win, the horses place, and future generations show – a perfect trifecta.
Sounds simple enough, right? Hold your horses! Be sure you understand the permanent changes you’re signing up for and the barrels you have to jump to reach the winner’s circle.
Don’t horse around: hire qualified professionals.
You have to engage qualified appraisers to qualify for a tax deduction on a conservation easement. Without assistance from experienced professionals, it can be far too easy to make mistakes that diminish the value of your property without getting you the tax deduction you’re after. My advice: look this gift horse square in the mouth: consult the experts and make sure you understand all the details and restrictions before you do anything you might regret later.
The ideal property isn’t saddled with debt.
Typically, you can only grant a conservation easement if the property is unencumbered, meaning you own it free and clear. If there’s a mortgage on the property, you’ll have to get the lender to agree to subordinate its rights to a land trust that will become the steward of the property. The lender also has to give up the right to foreclose if the loan isn’t repaid – a high bar to jump. It goes without saying that it could be hard to negotiate these concessions (hard, but not impossible – let’s chat).
A conservation easement permanently brands your land.
Before you take the bit, be absolutely sure that permanently restricting your property is what you want to do. Because – like getting a tattoo – it’s awfully hard to change your mind later. Be certain of all your facts, too, because there’s no use closing the barn door after you’ve granted the easement. As the donor, you can’t retain the right to substitute other property or take your property back – even if the IRS disallows the deduction.
Still, if you’re a landowner who wants a nifty, large tax deduction, it may be worth having a conversation about conservation easements.
Got questions? Go straight to the source and ask the horse …
EDITOR’S NOTE: This piece generated healthy guffaws around the office so we decided to keep it pun-packed and giddy. You know what they say about laughter … especially on a dry topic like taxes!