Conservation Easements:Preserving Agricultural Land and Water

Sarah Parmar

Colorado Open Lands

Colorado Congreso de Acequias

October 11, 2014

What is a Conservation Easement?

A conservation easement is a legal document whose purpose is to protect specific conservation values of land (including agriculture), by restricting certain uses of the land that are not consistent with those values.

That legal document represents a relationship between you, as the landowner, and the “holder” of the conservation easement – a land trust or government agency.

Typical restrictions in a conservation easement

•No subdivision or limited subdivision

•Limited homes and other buildings within identified areas (“building envelopes”)

•Prohibition or restrictions on mining

•Water rights must be kept with the land (cannot sell or change use of water)

What a Conservation Easement Is NOT

A quick and easy way to make money

A way for a land trust or government to gain control of your property

There are potential cash and tax benefits associated with conservation easements, but if this is your only motivation, you probably shouldn’t do it.

Land can still be used, sold, mortgaged, and passed on to future generations. Easements do not mean that the public can access your property.

Why a Conservation Easement?Land Trust/Government Perspective

Conservation Values• Agricultural Operations (working farms and ranches) • Relatively Natural Wildlife Habitat• Open Space (scenic views that property provides to the public)• Public Education and Outdoor Recreation (fishing, wildlife viewing, trails)• Historical Sites

We want to protect those things that make Colorado special!

We believe that ranchers and farmers are the best owners and managers of their land.

Why a Conservation Easement?Landowner Perspective

• You care about keeping your land open for future generations– Keeps land and water available for ag– Peace of mind knowing that land won’t be

turned into a subdivision

• Provides a one-time source of income and/or stream of tax benefits

• Can make it easier to pass the land to your heirs

How is a Conservation Easement Valued?

“Before Value” –

“After Value”

Conservation Easement Value

“Before value” is what your property would sell for today (based on comparable sales)

“After value” is what your property would sell for with the conservation easement restrictions on it

The difference is the value of the rights you are giving up in the conservation easement

*Key question is whether the conservation easement really changed the “highest and best use” of the land

Tax Benefits of Conservation EasementsFederalTax Deduction: Qualified farmers and ranchers may deduct up

to 100% of their income for up to 16 years up to the value of their conservation easement (others may deduct up to 50% of AGI)

StateTax Credit: Landowners generate a credit equal to 50% of their conservation easement value up to $375,000 which they can either:• Use to offset their own tax bill (for up to 20 years)• Or sell to someone else to use (going rate is 82 cents on the dollar)

EstateA conservation easement reduces the value of your land; therefore reducing the estate tax burden on your family when land passes from one generation to the next

ExampleCurrent farm Highest and best use

Before value of $500,000

ExampleConservation easement

Highest and best useafter conservation easement

Before value of $500,000

After value of $300,000

Easement value of $200,000

Federal deduction of $200,000

State tax credit of $100,000

Sale of credit = $82,000

Don’t forget costs!

What is the process like?

• Contact a land trust – COL, RiGHT

• Costs and Tasks – average cost of conveying an easement is $40,000

• Landowner Assistance

• Funding – NRCS, GOCO, private

• Time involved – at least 6 months for a donated conservation easement; often 2 years for a funded conservation easement

NRCS Agricultural Land Easement Program

Provides funding up to 50% of the conservation easement value for qualifying cropland and grassland

Land trust applies for this funding to pay landowner for conservation easement

Farm Bill program and new program rules still being set

QUESTIONS?

Colorado Open Lands

Sarah Parmar

(719) 695-0060

RiGHT

Rio de la Vista

(719) 850-2255