Introduction to Conservation Easements and Potential Financial Incentives, by The Piedmont...

PIEDMONT ENVIRONMENTAL COUNCIL PIEDMONT ENVIRONMENTAL COUNCIL Photo by Ken Garrett

Michael Kane

Land Conservation Officer

Loudoun & Northern Fauquier Counties

Financial incentives available for preserving land with Conservation Easements

PIEDMONT ENVIRONMENTAL COUNCIL PIEDMONT ENVIRONMENTAL COUNCIL

PIEDMONT ENVIRONMENTAL COUNCIL


Why Conserve Our Land and Resources?

Our land provides us with….

A renewable source of

nourishment & fiber

A sustainable natural

environment

Jobs and Rural economies

Recreation & Tourism

Historic and scenic places to

experience and learn.

Our land connects us to our past and

sets the course for a prosperous future.


What is a Conservation Easement?

• A voluntary agreement between a

landowner and a land trust or

government agency to limit future

development of property.

• Easement must advance a

conservation purpose and result in

public benefit.

• Landowner is giving up a “stick” from

their property rights bundle.

• Easement must be consistent with

local Comprehensive Plan.

• Easement is forever.


• Comprehensive Planning

• Rural / Agricultural Zoning

• Conservation Overlay Districts

• Land Use Assessment / Taxation

• Agricultural / Forestry Districts

• Historic Districts / Scenic Corridors

• Parks & Natural Areas acquisitions

• Family land transition and estate planning

• Conservation Easements

The Land Conservation Toolbox—A Sampling


Conservation easements typically include terms that:

Limit subdivision of property

Limit intensive industrial & commercial activities (other than agriculture)

Call for management of forests

Protect water with riparian buffers

Limit blasting & mining

Trash & Dumping

Limit signs & billboards

But…easements are flexible tools that recognize that no

two properties are the same.


What are some of the myths about conservation easements?

You have to grant public access to your land.

You can’t sell your land.

You can’t continue to farm, hunt, fish.

You can’t harvest timber on your land.

You can’t pass your land on to your kids.

Easement holder will tell you what to plant.

One size fits all.


Who accepts / holds easements?

• Local governments, for instance those

with Purchase of Development Rights

(PDR) Programs

• State agencies (VOF, DOF, DHR)

• Certain non-profit organizations that

meet state and federal requirements

(PEC, Land Trust of Virginia, Northern

VA Conservation Trust, The Nature

Conservancy).


Protected Land in the 9 County PEC Service Area

1994


2004



PEC and partner organizations have helped preserve over 375,000 acres in the PEC nine county service area.


2014

• 1,558 miles of streams and rivers

• 9,089 acres of wetlands

• 176,660 acres of prime farming soils

• 175,786 acres of forests

• 102,188 acres along scenic byways

• 120,749 acres in historic districts

• 27,708 acres of Civil War battlefields


Why do people give easements?

Three primary reasons….

1. They love their land




And…because they love their land and want to protect it for the next generation.

And…because they may be eligible for:

o Federal Tax Deduction – full or partial easement donation

o State Tax Credits – full or partial easement donation

o Property Tax Benefits

o Local Purchase of Development Rights programs

Why do people give easements? (Part II)


$3,000,000 Value of property prior to protecting

land with a conservation easement

- $2,100,000 Value of property after protecting land

with a conservation easement

= $900,000 Value of conservation easement

(i.e. loss of property value due to easement)

(potential value of tax deductible charitable gift)

THIS IS A HYPOTHETICAL EXAMPLE ONLY AND IT IS NOT INTENDED TO BE TAX OR LEGAL ADVICE. CONSULT

YOUR OWN LEGAL OR FINANCIAL ADVISOR ABOUT YOUR PARTICULAR SITUATION.

Calculating the value of an easement


Size of federal deduction = easement value. But, use of

the deduction is subject to certain rules:

Donation can be used to deduct up to 30% of Adjusted Gross Income (AGI)

Unused donation can be carried forward and used on future taxes for 5 years (year 1+5 = 6 years).

Cash value of deduction is going to be determined by your own financial situation / marginal tax rate

See example if AGI = $200,000

Federal Income Tax Deduction




Virginia Land Preservation Tax Credit (LPTC)

CREDIT is different than deduction

$1 of credit can be used to pay $1 of VA Income Taxes

owed.

Easement donor can claim credit = 40% of the land or

easement donated.

Can use the credits in the year of the donation plus 13

additional yrs.

Individual taxpayer limited to using $20,000 per year in

2015-16, $50,000 per year thereafter. (new for 2015)

Can sell unused credits to other taxpayers.

Virginia is one of the few states that offer a state income tax

CREDIT for conservation easement donations


“Run the Numbers on the Incentives” – An Example

Assumptions: Before Easement Value $3,000,000

After Easement Value $2,100,000

Easement Value $ 900,000 (30%)

Adjusted Gross Income --Married $ 200,000/year

State Tax Credit (40% of $900,000 donation) $ 360,000

Potential Value of Incentives

Fed Income Tax Savings (over 6 yrs): $ 98,784

VA Income Tax Savings from Fed Deduction: $ 20,700

Income Tax Savings using LPTC $ 140,300

Sale of remaining $219,700 in credits @ .80 $ 175,760

--less VA Transfer Fee $ 10,985

Total $ 424,559




Virginia Land Preservation Tax Credit (LPTC)

Virginia is one of the few states that offer a state income tax

CREDIT for voluntary land conservation donations

Since 2000….

• Over 2,500 donations of land

or conservation easements

• Over 540,000 acres

conserved using the LPTC

• Over $1.2 Billion in LPTC

credits issued

In 2015…..

$75 million is available for land

and conservation easement

donations through LPTC


Purchase of Development Rights (PDR) Programs

• Fauquier, Clarke, Rappahannock,

Loudoun, and Albemarle in PEC

area

• PDR programs typically rank

applications, with focus on

farmland preservation

• Due to limited funding, “bargain

sales” are common

• 22 programs statewide

Under PDR programs, landowners voluntarily sell—rather

than donate—a conservation easement to local jurisdiction


“Run the Numbers on the Incentives” – An Example

Assumptions: Before Easement Value $3,000,000

After Easement Value $2,100,000

Easement Value $ 900,000 (30%)

Adjusted Gross Income --Married $ 200,000/year

PDR Program funding (8 Division Rights @ $25K) $ 200,000

State Tax Credit (40% of $700,000 donation) $ 280,000

Potential Value of Incentives

PDR Program funding (8 Division Rights @ $25K) $ 200,000

Fed Income Tax Savings (over 6 yrs): $ 98,784

VA Income Tax Savings from Fed Deduction: $ 20,700

Income Tax Savings using LPTC $ 140,300

Sale of remaining $139,700 in credits @ .80 $ 111,760

--less VA Transfer Fee $ 6,985

Total $ 564,559




Getting Started—How do people give easements?

• Land Trust (or public agency)

• Legal Advisor

• Financial Advisor

• Qualified Real Estate Appraiser

• Tax Credit Broker

• Lender

Donating a conservation easement call for a team effort!

CONTACT PEC! We are here to assist you.


Professionals will help you…

Getting Started—How do people give easements?

• Determine if a conservation easement is right for your

situation

• Connect you with the organization with a mission that

matches your conservation goals

• Run those numbers….on the financial incentives

• Understand the legal, technical, and financial implications

of giving an easement

• And, finally, provide advice—after the easement is

complete—on the managing your property’s unique

resources


Benefits to the Landowner

• Permanently protect the land you love

• Extract some of the land’s cash value now without having to sell any land fee simple

• Retain the right to own & farm the property

• Maintain the ability to sell the property (subject to easement restrictions)

• Assist in estate planning

• Ability to take direct action that can benefit the entire community


Upcoming PEC Workshop on Estate Planning


Gilberts Corner

Loudoun County, VA

Introduction to Conservation Easements and Potential Financial Incentives, by The Piedmont...

Environment

Transcript of Introduction to Conservation Easements and Potential Financial Incentives, by The Piedmont...