Frequently Asked Questions About Conservation Easements

Invariably, the subject of conservation easements raises many questions in the minds of landowners contemplating their use. The following is a compilation of some of the more commonly asked questions.

Who may give a conservation easement?

Any landowner of record may donate a conservation easement establishing self-imposed restrictions on the uses of his or her property. If there is a lienholder on the property, the lienholder must accept and agree (subordinate) to the terms of the easement. Taxes are still paid on the property by the owner of records.

What rights and duties does the landowner retain?

Simply said, a landowner gives up only those rights which are consistent with achievement of the conservation intent specified in the easement. All other rights of ownership remain unchanged. Except for the specific restrictions set forth in the conservation easement document, the landowner retains all other rights which were originally conveyed when the property was purchased. The land can be sold, leased and/or conveyed to heirs at death of the original owner. Additionally, hunting, fishing, other recreational uses, timber management and utilization of other natural resources, such as minerals, can all be enjoyed as long as such activities are consistent with the restrictions that are chosen and placed in the initial easement conveyance.

How can you know if your property qualifies for a conservation easement?

Basically, if your property is undeveloped, forested or in any other agricultural use, it may meet the very basic qualification for conservation easement conveyance. In the case of Mississippi, most property currently in prairie, upland or bottomland hardwoods or longleaf pine would qualify for development of a conservation easement.

Does every easement qualify for an income tax deduction?

No. To qualify as a charitable contribution, conservation easement donations must be perpetual, be donated to a qualified organization (a nonprofit land trust or public agency) and meet one of the "conservation purposes" tests outlined in the Internal Revenue Code.

Does every easement have to be perpetual?

For the donation to qualify for income and estate tax benefits the conservation easement must be perpetual and apply to all future owners. Some organizations may be willing to purchase conservation easements; easements that are purchased can be designed for a period of years. For example, the Wetlands Reserve Program administered by the Natural Resources Conservation Service, pays landowners for conservation easements on restored or existing wetlands that provide significant habitat for birds and other wildlife.

What are the "conservation purposes" recognized by the Internal Revenue Code?

The Internal Revenue Service Code Section 170(h) requires that conservation easement donations meet one or more of the following conservation purposes: protects relatively natural habitats of fish, wildlife or plants; preserves open space - including farms, ranches or forests - either for scenic enjoyment or in keeping with an adopted public policy; preserves land for public outdoor recreation or education; or preserves historically important land or certified historic structures.

Each conservation easement must meet one, but not all, of these recognized purposes. The conservation purpose of most conservation easement donations in Mississippi is derived from the protection of open space or wildlife habitat.

Can a conservation easement protecting open space in a real estate development qualify for an income tax deduction?

No tax deduction will be allowed if the donation is made under compulsion, or in exchange for a benefit that the landowner expects to receive. Also, charitable income tax deductions for real estate developers are generally limited to the tax basis of the property.

Does a conservation easement grant public access to my property?

No. Landowners retain control of access to their property. They may choose to allow access to specific groups or the general public in their conservation easement agreement, but are not required to do so.

Can I still sell my property?

Yes. Property with a conservation easement can be bought, sold and inherited. However, the conservation easement is tied to the land and binds all present and future owners to its terms and restrictions.

What will a conservation easement mean for my children?

A conservation easement may reduce estate taxes paid by heirs. Future landowners, including family members, will abide by the terms of the conservation easement agreement and will continue the relationship with the organization that "holds" the easement. Families should consider the trade-off between immediate tax benefits resulting from reduced property value and permanent restrictions on land use.

What if the property is owned by more than one person?

All owners of a property must agree to the terms of the conservation easement before it can be legally granted.

Can I still build on my property?

The landowner may retain specified development rights in a conservation easement agreement. For example, a conservation easement protecting a farm or ranch can allow construction compatible with agricultural operations as well as changes in crop selection or management practices. A conservation easement can specify the location, size and type of one or more residences or other development on a property.

What if my property is mortgaged?

In order for a donated conservation easement to qualify for an income tax deduction, the landowner must acquire a mortgage subordination agreement from the mortgage holder, often a bank. With this document, the mortgage holder agrees to follow the terms of the conservation easement in the event of foreclosure.

What if I don't own the mineral rights to my property?

This is a complicated issue that should be discussed with professional advisors. However, a landowner who does not own the mineral rights to his or her property can qualify for income or estate tax benefits if: ownership of the mineral rights was separated from the land before June 13, 1976 and remains separated today; the owner proves that the probability of surface mining occurring on the property is "so remote as to be negligible."

Where are conservation easements recorded?

Like a deed or other types of easements, conservation easement documents are recorded with other land records in the county in which the property exists.

Can conservation easements be changed or revoked?

Because conservation easements qualifying under IRS regulations are designed to be permanent, landowners should assume that it will not be possible to revoke an easement. However, conservation easements can be amended if: both the easement holder and the landowner agree to the terms of the change; the IRS recognized "conservation purpose" of the conservation easement is not affected.

Can a conservation easement be donated by will?

Yes. The landowner must contact the intended easement holder before conveying the easement by will to ensure that the organization will accept the donation. If the easement qualifies under federal tax law, its value is subtracted from the landowner's taxable estate, reducing estate taxes for heirs.

What restrictions can be included in a conservation easement?

For the most part, conservation easements restrict future development of the property, however, they are flexible and can be written to include, or not include, almost any restricted use that is agreed to by the landowner and the conservation organization holding the easement. For example, it can be so restrictive that it mandates that the land be left in its natural state. On the other hand, it is common for easements to provide for various activities such as farming, hunting and fishing, planting of food plots and, in some cases, limited structural development.

Can the conservation easement be placed on just a portion of a tract of land or must it be placed on the entire property?

An easement can be applied to an entire property or to any portion of it, depending upon the character of the land. It is not uncommon to have a portion of a particular land ownership fronting a natural lake area, river front, or in bottomland hardwoods with associated wetland habitats. Generally, properties with the highest risk of development and most desirable development characteristics, carry the most advantageous tax benefit.

What can a conservation easement mean to a landowner?

By placing a conservation easement on a particular parcel of land, a property owner can be assured that the land will forever remain in a natural state unaltered by humans. Paradoxically, a landowner is rewarded personally and philosophically by the knowledge that protective covenants are in place to promote his or her specific conservation ethic while receiving immediate financial benefits through the tax advantages that accrue.

What are the financial benefits to the landowner?

The value of a conservation easement is established by a competent real estate appraiser experienced in the use of conservation easements. The appraiser will establish the value of the property without the easement then deduct the value of the property with the easement in place. The difference between the restricted and unrestricted value of the property is the amount that is considered as a charitable contribution for income tax purposes. In addition, the easement can reduce the value of the property in terms of the landowner's estate, thereby reducing the amount of estate taxes that would ultimately have to be paid.

Conservation easements are increasing being recognized as a viable and desirable landowner driven approach to natural resource conservation in Mississippi. Only through the efforts of private landowners can we be assured that these cherished resources will be passed on to future generations yet unborn.

Through the application and use of conservation easements is simple in concept, the process itself can be a bit more complex. The extent of that complexity is relative to the particular parcel in question and the specific conservation intent of the owner(s). As in any management endeavor where unknowns exist, it is important to seek the advice of professionals with experience in the development of conservation easements.

Conservation Easements
What Is a Conservation Easement?
Why Use a Conservation Easement?
What is the Uniform Conservation Easement Act?
Frequently Asked Questions about Conservation Easements
Financial Benefits of Conservation Easements
Federal Income Tax Deduction
Estate Taxes
Local Property Taxes
Land Trusts
What Next?
Appendices