Introduction to Conservation Easements

James Oliver

Director of Land Conservation

OUR MISSION

To conserve the Texas heritage of agricultural lands, natural resources, and wildlife habitats.

What is a Land Trust?

• A private, non-profit 501c3 entity whose mission is land conservation

• Known as the conservation easement “holder”• Has the obligation to monitor and enforce the

conservation easement• Typically visits the property once a year to ensure

that the terms of the easement are being upheld

What is a Conservation Easement?

A voluntary, negotiated legal agreement between a landowner and a qualified conservation easement holder (land trust) that permanently limits a

property’s uses in order to protect the property’s conservation values.

What is a Conservation Easement?

• Selectively removes rights from the title of the land• Individually tailored and negotiated• Filed in the county real estate records• A legal agreement provided for under state law.• Protects specific conservation values• Generally perpetual in nature• Runs with the land - binding on all future owners

Purpose of Conservation Easements• Protection of significant natural and ecological

resources• Protection of historical resources• Protection of open space, including ag landsThe purpose of an agricultural conservation easement

is to protect the viability and productivity of working lands while also protecting their conservation values.

Agricultural Conservation Easement

• Limits future non-ag use, but encourages ag enterprises• Flexibility allows for economic changes• Permits construction of new agricultural buildings, fences,

waterings, and residential dwellings• Does not require public access• Does not provide immunity from condemnation• Can be terminated, but only under rare circumstances

What can you do?

Enviro Green

What can you not do?

Types of Conservation Easements

• Donated easements are governed by IRS regulations, must be perpetual to qualify for a deduction (Section 170(h) IRC)

• Purchased easements (Purchase of Development Rights or PDR). Governed by the rules of the organization funding the purchase.

• Term easements may be possible.

Donated Conservation Easement Benefits• Income tax deduction – considered a Charitable Donation• Estate tax relief due to lowered appraised value • Facilitates succession planning and relieves pressure on

heirs• Protects production and conservation values of the land

while eliminating the risk of fragmentation and non-ag development

Tax Incentives

Enhanced tax incentives Made permanent by Congress in 2015• Can deduct against 50% of AGI

(100% for a qualified farmer/rancher)

• Carry-forward 15 years plus the year of the donation, for a total of 16 years

Tax Incentive – How it works

LANDVALUE

$2,100,000

$2,400,000

After Conservation Easement

Charitable Contribution

Appraised Value Before Conservation Easement

$4,000,000

Decrease in value 40%

$1,600,000

Valuation of a Conservation Easement

Tax Deduction – Enhanced IncentiveLet’s assume that the landowner’s annual adjusted gross income for income tax purposes is $200,000, which remains constant.

The deduction resulting from the easement is as follows: (50 percent of $200,000 = $100,000)

Year of Contribution $100,000

Carry Forward to Year 1 $100,000

Carry Forward to Year 2 $100,000

Carry Forward to Years 3 – 15 _ $1,300,000

TOTAL DEDUCTION $ 1,600,000

Bottom line: The Landowner is able to use up the entire deduction

Estate Tax Considerations - Example

Jones Ranch

$33 Million $33 Million

Smith Ranch

Estate Tax Considerations – Case Study

Jones Ranch

$33 Million $33 $19.8 Million

Smith Ranch

Estate Tax Considerations – Case Study

FET / Sells to pay taxes / divisions for heirs

Jones Ranch

$33 Million $33 $19.8 Million

Smith Ranch

SOLD

PurchasedAgricultural Conservation Easements

• Agricultural Conservation Easement Program• Passed within the 2018 Farm Bill• FY19 Funding for ACEP is $450 million • No longer requires a non-federal cash match

Federal (Purchase of Development Rights)

State (PDR) – Texas Farm & Ranch Lands Conservation Program• Managed by Texas Parks & Wildlife Department• Oversight board = representatives from statewide agricultural

organizations• Received a $2m appropriation in each of the last three legislative

sessions to provide the non-federal cash match

PurchasedAgricultural Conservation Easements

Local / Resource Specific• City of San Antonio $360 million Aquifer Protection Initiative –

to protect drinking water• City of Austin $50 million open space protection bond initiative,

2006 – to protect Barton Springs• DoD – to create buffers around military installations• Deepwater Horizon settlement funds – to mitigate the impacts

of the spill• Mitigation banking – to mitigate impacts to

species or water

PurchasedAgricultural Conservation Easements

Negotiating the Conservation Easement

• Process essentially the same for donated vs. purchased easements

• Negotiate reserved rights

• Get an appraisal

• Develop a “baseline report”

• Easement is executed and filed in the county real estate records

Pros & Cons

Potential Drawbacks

• High transaction costs in some cases• Limited funding for purchased easements• Sale of easement subject to capital gains tax• Tax benefits generally only available to the

first generation • Use of property is limited for the future• Value of the property is reduced by the

conservation easement

Benefits

• Income tax deduction - donated• Estate tax relief due to lowered appraised value - both donated and purchased

conservation easements• Facilitates succession planning and relieves pressure on heirs• Binds a landowner’s good intentions to the land in perpetuity• Protects production, natural resources and conservation values of the land while

eliminating the risk of fragmentation and non-ag development• Convert equity to cash (purchased easements)

Can help landowners create a legacy for future generations!

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Texas Agricultural Land Trust Slides

Texas Agricultural Land Trust

1919 Oakwell Farms Parkway, Ste 100

San Antonio, Texas 78218 210-826-0074

joliver@txaglandtrust.org

www.txaglandtrust.org

CONTACT US