guide to agricultural conservation easements

8/8/2019 Guide to Agricultural Conservation Easements

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The Land Conservancy of San Luis Obispo County POBox12206,SLOCA93406(805) 5449096 LCSLO.org

GUIDE TO AGRICULTURAL CONSERVATION EASEMENTS

Agriculturalconservationeasementscanhelpprotectfarmingandranchingasawayoflife

andalsobeaneffectiveandpracticalplanningtoolthatbenefitsthefarmorranch,aswellas

thebottomline. Theland,business,estateandfinancialplanningshouldallbeconsidered.

Thisprocesscanbeanintegralstepinsuccessionplanning.

Anagriculturalconservationeasementisavoluntaryagreementbetweenalandowneranda

landtrust,suchasTheLandConservancyofSanLuisObispoCounty(LCSLO),orapublic

agency topermanentlyprotect apropertys agriculturalvaluesby allowing for continued

farmingorranchingwhilelimitingfuturedevelopmentandotherharmfuluses. Easementsrun with the land meaning they remain in place even after the property changes

ownership.

Belowaresomefrequentlyaskedquestions:

Howdoesaconservationeasementaffectpropertyrightsandvalue?Landownersstillholdtitletotheirpropertyandtherightsofownership,suchastherightto

sell the property, lease the land, leave it to their heirs, the right to privacy; in addition,

property also has other rights such as the right to harvest timber andminerals, use and

divertwater,

till

the

earth,

raise

livestock

or

subdivide

and

develop.

A

conservation

easementwillrestrictsomeofthesepropertyrights,whileretainingagriculturaluses.

By restrictingcertainpropertyrights,conservationeasementsmayreduce thevalueof the

property. This can help a family pass land to the next generationwithout subdividing

and/or developing it to pay the inheritance taxes. This is particularly important in

agriculturalareasfacingtheconversionofagriculturallandstourbanuses.

Doestheeasementhavevalueandhowisitdetermined?Theeasementrestrictscertainpropertyrights,andthevalueoftheconservationeasementis

the

difference

between

the

value

of

the

highest

market

value

for

the

property

before

the

easement,andthemarketvalueofthepropertyaftertheeasementisinplace. Thisiscalled

the beforeandafter approachtovaluation;the after valuetypicallyreflectsthepropertys

restricted value. A qualified, credentialed appraisal is always used to determine the

easementvalue.


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Thevalueoftheeasementmaybedonatedoriffundingisavailable,alloraportion(bargain

sale)maybepurchasedbyLCSLOthroughfundingfrompublicorprivategrants. Funding

foreasementsisverylimitedandmustbecompatibletothelandownersusesandgoalsfor

theproperty. Ifsomeoralloftheeasementvalueispurchased,itmaytakeseveralmonths

toa fewyears forLCSLO to locateandobtain the funding,and there isnoguarantee that

grantfundscanbelocated. Donatedeasementshaveincometaxbenefitsthatarediscussed

onthefollowingpage.

Doesaconservationeasementcovertheentireproperty?Inmost cases the conservation easement covers the entireproperty,but a landowner can

excludespecificareas.

Dolandownersneedanattorneytoplaceaconservationeasementontheirproperty?Placingaconservationeasementonyourpropertycanhavesignificantlanduse,incometax

andestateplanningconsequences. ItisthepolicyofLCSLOtorequirelandownerstohave

qualified legal counselbefore completing a transaction to assist in the decision making

processandreviewoflegaldocuments.

Whatare the tax implicationsfora landownerplacingaconservationeasementon theirproperty?It is important for the landowner to secure theadviceofaqualified taxadvisor toobtain

information regarding the specific tax consequences for either the donation or sale of an

easement.

EstateTax: Conservationeasementsmayhelpreduceestatetaxesbyexcludingtheeasement

value from the taxable value of the estate. This canhelp a familypass land to the next

generationwithouthaving to sell, subdivideordevelop their familys land topay for theestatetaxes. TheFederalTaxpayersReliefActof1997allowsbeneficiariestoexcludefrom

thetaxableestate40%ofthevalueoflandforqualifyingconservationeasementssubjectto

limits. This is in addition to the reduction in the value of the land resulting from the

easementitself.

Income Tax: The landownermaybe able to take a Federal income tax deduction if the

easementispermanentanddonatedasabonafidecharitablecontribution.

PropertyTax: Thepropertytaxescouldbesignificantlyloweredoncetheeasementisplaced

ontheproperty,howeverifthelandownersbasisinthepropertyislowerthantheeasement

value, theremaybenoproperty tax reduction realized. In somecases,dependingon the

circumstances, theassessorhasnot loweredproperty taxes, and thereforenoguarantee is

offered. It is always best to speak directly to the county tax assessor regarding your

situation.


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CapitalGainsTax: Sellinganeasementisconsideredasasaleofacapitalassetandistreated

ascapitalgaintotheextentthattheproceedsexceedthebasisintheproperty.Thesaleofan

easement may qualify for a 1031 inkind exchange to defer capital gains taxes while

allowing thepropertyowner to acquire additionalproperty. It is strongly recommended

thatanattorneyexperiencedin1031exchangesisconsultedifconsideringthismethodoftax

deferralofcapitalgains.

TheLandConservancyofSanLuisObispoCountystronglyurgesalllandownerstoseekout

theirowncounselontaxandlegalissues.

Doesaconservationeasementaffectborrowingpower?Notnecessarily.The easement itselfdoesnot restrictuseof theproperty as collateral for

borrowing; and the property may still have significant value even with a conservation

easement.

Isamortgageaffectedbyaconservationeasement?Yes,

any

mortgage

or

deed

of

trust

or

other

monetary

lien

on

the

property

must

be

either

discharged prior to the easement or subordinated to the easement. In the case of

subordinationitisadvisabletotalktoyourlenderwellinadvanceofplacinganeasementon

thepropertytodeterminewhat,ifany,requirementstheymayhave.

Howistheamountoftheeasementprojectandstewardshipfundingdetermined?Aconservationeasementisaperpetualobligationandresponsibility,anditisimportantthat

fundsareavailabletoLCSLO toensure theconservationeasement isupheld.Funding isa

necessityforthemonitoringandenforcementofeasementsalongwiththerelatedeasement

projectcosts.

LCSLO generally requests a donation for each conservation easement it acquires. The

amountcanvary,butitisusually3%oftheeasementvalueforpurchasedeasements,anda

minimumof$10,000fordonatedeasements.

Howlongwilltheconservationeasementprocesstake?Itdependsonwhethertheeasementthatiscontemplatedisbeingdonatedorsold. Locating

andobtaining fundingmaybeaseveralyearprocess. Donatinganeasementstillrequires

appropriatetimetonegotiatetheeasement,secureanappraisal,titledocuments,preparea

baselineconditionsreportandobtainlegalreview.

Whataretheassociatedcoststoaconservationeasement?Potentialcostsareallorpartoftheappraisalcosts,stewardshipendowmentdonation,and

attorneyfeesforthelegalreview.


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Howistheconservationeasementmonitored?LCSLO visits each of its easementprotected properties at least once each yearwith the

landowner. These planned visits provide an opportunity to exchange information, to

answerquestionsabouttheeasement,andtocomparetheconditionofthepropertywiththe

baselineconditionsreport.

Whatisthenextstep?LCSLOstaffwillvisitthepropertywiththelandownertodiscussthepotentialconservation

easement,evaluatetheproperty,andthenprepareareporttobepresentedtotheBoardof

Trustees. Upon approval of the projectby the Board of Trustees, LCSLOwill send an

approvallettertothelandowneroutliningtheprocess.

guide to agricultural conservation easements

Documents