For this week’s Guest Post Friday here at Musings, we welcome a new face and newly solo attorney, Lee Stephens. Lee (@leestephenslaw) has represented dozens of landowners who successfully placed conservation easements on their property, ranging from a farm of 1,800 acres to a lot of 0.85 acres, all over the Commonwealth. Lee currently sits on numerous boards around Virginia and serves as counsel to Northern Neck Land Conservancy. Lee graduated from University of Virginia (1979), served as a surface warfare officer in U.S. Navy (1979-’84), studied law at William & Mary (1987), and was President of The Tides Inn (1989-2001). Lee headed up the Irvington office of Spotts Fain as a shareholder until…yesterday! June 1, 2012 is the first day of his new firm, Lee Stephens Law, PLC.
You may have heard of a “conservation easement” and the benefits or problems that landowners have realized. These legal instruments are potentially wonderful ways to protect your land and collect tax benefits, but if done carelessly you can regret it.
A conservation easement is like a trust. It is an enforceable agreement between a landowner and an easement holder (think “trustee”), which may be a government agency or a land trust charity. What you give up is the right to develop the land, such as building houses.
You may have the right to build a house on your property, run a business or even conduct industrial operations, if allowed by law and local zoning. When a landowner donates a conservation easement on his land, he relinquishes specific development rights. You still own the dirt, and the public has no access without your permission, but you can’t develop it.
The conservation purpose of a conservation easement is to protect farms, timber, historical sites, and other natural resources such as wildlife habitat, clean water, clean air, or scenic open space by restricting such things as real estate development, commercial and industrial uses. The landowner who gives up development rights on his property continues to privately own and manage their land and may be eligible to receive significant state and federal tax advantages for having given up the development rights.
If you love your land enough to place a perpetual conservation easement on it, there are many benefits you can receive. The tax benefits come mostly in the form of Virginia income tax credits and Federal income tax deductions.
State Income Tax Credits
Virginia is among a dozen states that offer a state income tax incentive, and the most generous of the 4 that allow taxpayers to transfer income tax credits that they cannot or do not want to use themselves. This enables landowners to get cash in hand after putting the easement to record. Virginia’s Land Preservation Tax Credit (“LPC”) is worth 40% of the value of the charitable donation. Virginia LPCs are capped at $111 million in 2012.
If the taxpayer cannot make use of the LPCs, or chooses not to use them, the tax credits may be sold to high-income taxpayers who will pay cash for the credits. Once the LPCs are brokered, most landowners realize approximately 75 cents for every $1.00 of conservation value.
Income Tax Deductions
The Federal tax deduction is a huge motivator, and in itself incentivizes landowners all over America to donate their land. Landowners who donate a conservation easement to a holder under the regulations set forth in § 170(h) of the Internal Revenue Code may be eligible for a federal income tax deduction equal to 100% value of their donation.
To qualify for this income tax deduction, the easement must be: a) perpetual, b) donated to a qualified holder; and, c) serving a valid “conservation purpose.” When a landowner donates an easement meeting these IRS rules, he may deduct the value of the gift at the rate of up to 30% of his adjusted gross income (“AGI”) per year. Any amount of the donation remaining after the first year can be carried forward for five additional years.
There are many other potential benefits – and burdens- of placing conservation easements on your land. I can help you work through your planning, so you can rest easy once you have made a gift of your development rights. Contact me at 804-480-4090 or email@example.com.