One way to reduce your federal estate tax liability is to create a conservation easement that could help your heirs avoid selling land to pay those taxes. This also allows your land to remain in your family. Although a conservation easement can be placed after your death in some cases, it is much easier to create the easement. However, this is not a process that you can handle on your own. You need the advice of a conservation easement attorney.
What is a Conservation Easement?
Very simply, a conservation easement is a legal agreement that permanently limits the use of land in a way that protects its values related to conservation. The agreement is entered into voluntarily and can protect your property for future generations. The agreements are often less costly than creating a land trust and they offer valuable tax benefits. Keep in mind that a conservation easement is a legally binding agreement that allows you to retain private property rights but grants certain rights to a private organization or public agency. All conservation easements must provide some type of public benefit such as:
- Education
- Farm preservation
- Historic preservation
- Outdoor recreation
- Ranch preservation
- Scenic views
- Water quality
- Wildlife habitat
Restrictions Under Conservation Easement
Every easement is unique and what is included depends on what you are trying to protect. IF you eventually plan to subdivide the land or build a house on it, you may be able to reserve the right to do so as long as the conservation values are still protected. For instance, if you want to protect a wildlife habitat, that must remain intact when the land is subdivided. If you are protecting farmland, a house may be permitted but development may not. In most cases, a conservation easement will allow farming and ranching to continue but usually restricts development. Some easements may require public access to the land, but not all do so. Before creating the easement, it is important to talk to an attorney about what may be the future use of the land. Most conservation easements are permanent which means any subsequent owner will be subject to the easement. It is possible to create a temporary conservation easement, but only permanent easements are provided tax benefits.
Claiming a Conservation Easement
When you claim a conservation easement, your tax deduction is the difference between the use of the property that yields the most money and the actual value of the property as restricted. Unfortunately, many people abuse this area of tax law. Some charitable organizations who hold the easement may not be a valid non-profit or the taxpayer may use an invalid property value. Under the law, the organization that receives the easement must be a qualified conservation organization with the resources to enforce the restrictions. They must also be committed to enforcing the easement. The law also requires that the easement be issued “in perpetuity,” which means that all future owners of the property must abide by the agreement, and lenders who may write loans against the property are bound by the document.
Determining Value
The most difficult part of claiming a conservation easement is determining the dollar amount. The law requires an appraisal to determine the fair market value of property rights you may be surrendering, and this can be a difficult number to pin down. If you overstate the value, your tax deduction is overstated, exposing you to penalties, fines, and even criminal charges.
It is critical that you speak to a tax attorney when it comes to assessing the value of a conservation easement to avoid any discrepancies. When it is time to claim the deduction, you include it as a non-cash contribution on Form 8283. Keep in mind that the amount of the deduction can vary depending on how you use the property.
Additional Costs of a Conservational Easement
There can be additional costs incurred with a conservational easement. The conservation agency may require a stewardship fee to cover the operating costs that may occur as they monitor and enforce the easement. In some cases, land protected for farming may see higher stewardship fees than land preserved for other purposes. It is important to discuss with both your tax attorney and the organization any additional fees you will be expected to pay as part of the easement.
The Need for Legal Assistance
This information clearly shows how complicated a conservation easement may be. The agreement must be carefully drafted, and all scenarios considered. A conservational easement allows you to leave your mark on your property and receive financial incentives to do so, but it also comes with some risk. It is impossible to see into the future use of your land. As you may well know, once the land is developed, it rarely returns to its natural state, but it can be challenging to know what the future holds for that land. Therefore, you must contact an attorney with experience in conservation easements. At the Cumberland Law Group, we have extensive experience creating conservation audits and are ready to help you protect your land for future generations.
Facing a Conservation Easement IRS Audit?
Because there has been so much abuse of conservation easements in the past, the Internal Revenue Service commonly conducts audits on taxpayers who claim them. Even if you think you have done everything right, one minor detail could catch the eye of an auditor who thinks your claim needs additional investigation. This is an audit you should not handle on your own. You need to seek conservation easement audit assistance from an experienced attorney. The team at Cumberland Law Group has extensive experience with IRS audits related to conservation easements. We will work side-by-side with you in dealings with the IRS to get you all the deductions you are entitled to under the law.
If you are considering a conservation easement or have been notified of a conservation easement IRS audit, contact Cumberland Law Group today for a free, no-obligation consultation. We have successfully handled these same issues for dozens of others and can guarantee that only an experienced tax attorney will handle your case. Contact us at 678-385-3953 or click on the “Book an Appointment” link on our website.
