Imagine you have a few hundred acres of farm land that has been passed down for many generations. You truly love this land, but you know there is a chance that your multiple heirs may have different levels of interest in preserving the land—especially since the value of the land creates a tax problem for your estate.
One possible solution is placing a conservation easement on the land. This is a legal agreement between you, the landowner, and the easement holder that imposes restrictions on the way the land is used in perpetuity. Generally, easement holders are government environmental groups or specialized nonprofit organizations. They have the responsibility to permanently uphold the easement terms, so in this example, your farm land would have permanent agricultural rights, i.e., it could never be developed into a shopping mall.
With a conservation easement on your property, the value of your land can drop significantly because there are far fewer buyers for land that can never be developed. Let’s say your property’s best-use value is $2 million. A conservation easement could drop this value to $1.2 million. Those who donate their land to a conservation easement or those who place an easement on their land are provided a Georgia Conservation Tax Credit worth up to 25% of the fair market value of the donation, up to $250,000 for individuals and $500,000 for corporations and partnerships. Unused tax credits can be carried forward for up to 10 years. As the land owner, you also get a charitable donation on your federal return.
Between the reduced value of the property and the charitable donation, this reduces the value of your estate for your heirs. Additionally, federal estate tax laws allow for an exclusion of 40% of the value of the conservation easement, up to $500,000. So, in our example, if your land, once valued at $2 million, is now valued at $1.2 million with the easement, your estate executor could also exclude an additional $480,000.
But what if you don’t own a substantial amount of land but you or your business could still use that meaningful tax credit? There are partnerships that specialize in conservation easement land trusts, which seek to buy properties that align with Georgia’s current conservation goals, including water quality protection for wetlands, rivers, streams or lakes; protection of wildlife habitats; protection of outdoor recreation; protection of prime agricultural or forestry lands, and protection of cultural sites, heritage corridors, or archeological and historical resources. By investing into the partnership, you would be eligible to share in the tax credits awarded for placing the easement on the land. These are generally a low-risk investment when working with a reputable, well-established land trust or government agency.
This is merely an overview of how conservation easements can work. Potential easement land would need specialized appraisals and the Georgia Department of Natural Resources would need to determine tax credit eligibility. However, for those who have a significant tax liability or those who truly want to preserve Georgia’s natural resources, conservation easements may be a viable solution.
If you have questions regarding how conservation easements may work for your situation, the experts at Henssler Financial will be glad to help: