Property Easement?

[mamamustache]

Hi Mustachian friends,

We are exploring the idea of an easement on our rural property in VA to be able to get a tax break raise some money which we could then invest and hopefully grow to help cover our property taxes.

Has anyone every successfully set up an easement of this type before? Any tips?

Thank you!

[Michael in ABQ]

Hi Mustachian friends,

We are exploring the idea of an easement on our rural property in VA to be able to get a tax break raise some money which we could then invest and hopefully grow to help cover our property taxes.

Has anyone every successfully set up an easement of this type before? Any tips?

Thank you!

I assume you're talking about a conservation easement? Due to a lot of fraud in years past the IRS takes a pretty careful look at these. If you hire an appraiser who determines that your rural land is worth $100,000 an acre for a subdivision - when there are no subdivisions within miles and the highest and best use is just farm or recreation at $10,000 an acre - you're going to get audited and fined. Unless you're in an area that is ripe for development, or you have a large amount of land, it may not be worth the upfront costs.

Also, you'll need to do some careful searching and vetting to find a competent and experienced appraiser and probably a good lawyer or CPA to help you with the paperwork. Ballpark you're probably looking at $7-10k in upfront costs. So unless this easement will save you a lot more than that in taxes, it's probably not worth it.

[NorCal]

My extended family did a conservation easement about a decade back.  It was financially lucrative, but caused some issues with the family since the land was jointly owned.

My takeaway is that it involved a lot more ongoing obligations than were originally expected.  This particular easement required the creation of multiple ponds that would be appealing to some endangered newt, and these ponds had to be maintained by my family essentially in perpetuity.  I don't know the contractual details, but it wasn't a straight payment for land.

[Lucky Penny Acres]

Check into local non-profit land trusts in your area. You can work with them on the conservation easement and some of them fund many of the costs of establishing the easement if your property is in an area of interest for the land trust.  Even if they don't fund the costs, they have contacts with attorneys. appraisers, etc. that are well versed in conservation easements.

Also, check the specific tax benefits and what you need to qualify. In New York state, for example, you get a refundable state tax credit for 25% of the property tax amount per year only for qualifying conservation easements. As the easement can be in perpetuity, this can result in substantial tax savings over a lifetime, even if there are some upfront costs and even if you don't get paid for the initial creation of the easement.

[mamamustache]

Also, you'll need to do some careful searching and vetting to find a competent and experienced appraiser and probably a good lawyer or CPA to help you with the paperwork. Ballpark you're probably looking at $7-10k in upfront costs. So unless this easement will save you a lot more than that in taxes, it's probably not worth it.

Hi Michael in ABQ -- I didn't even think about upfront costs. You're right -- it would not be worth pursuing if we have to pay more than we would benefit from the easement.

[mamamustache]

This particular easement required the creation of multiple ponds that would be appealing to some endangered newt, and these ponds had to be maintained by my family essentially in perpetuity.

NorCal - The vision of miles of endangered newt ponds made me laugh. Not the maintenance though -- that sounds challenging!

[mamamustache]

Check into local non-profit land trusts in your area. You can work with them on the conservation easement and some of them fund many of the costs of establishing the easement if your property is in an area of interest for the land trust.  Even if they don't fund the costs, they have contacts with attorneys. appraisers, etc. that are well versed in conservation easements.

Also, check the specific tax benefits and what you need to qualify. In New York state, for example, you get a refundable state tax credit for 25% of the property tax amount per year only for qualifying conservation easements. As the easement can be in perpetuity, this can result in substantial tax savings over a lifetime, even if there are some upfront costs and even if you don't get paid for the initial creation of the easement.

Lucky Penny Acres -- thank you so much for the practical how-to-get-started tips and the point that the tax savings can be significant over time.

[GizmoTX]

If you have acreage, check into agriculture that significantly lowers property tax rates, such as grazing cattle or bee hives.

[jbfishing]

Sounds like you mean to donate a conservation easement for which you'll take a deduction on your federal income taxes.  There may also be state income tax deductions for VA too, I'm not sure.  To be worthwhile you need to have income taxes due and a deduction worth more than the new higher standard deductions.   To get value out of your donated conservation easement you'll have to give up rights that have value, like development rights or agricultural rights.  As noted already an appraisal will be needed so you can take the tax deduction.  Another option in some states is to sell, instead of donate, the conservation easement, if there is a funding program and you have the right habitats.  You should call your local land trust and see what they have to offer.  You can find them here https://www.findalandtrust.org/states/virginia51. 

If you do the easement you'll be in a long term relationship with the holder of the easement, typically a land trust or maybe the state.  You can expect at least one visit a year to monitor for compliance with the easement.   You might also get assistance, advice or funding, with property management and maybe new friendship with the staff, volunteers,  donors, or supporters of the land trust you work with.

[mamamustache]

Jbfishing thank you so much. You sound like a pro. Do you have personal experience with conservation easements?

[mamamustache]

Thank you GizmoTX, good thoughts. We do already lease the land for cow grazing and have been curious about beehives too.

[fixie]

As a potential buyer of rural land I avoid conservation easements like the plague.  If you are considering selling the property, ever, you would do well to avoid making one. 
Think about it.  If you want to have land for farming or forestry or something, why would you ever allow restrictions on how you could use it, FOREVER?  Making a living farming is hard enough.  Think of the boards, faceless government entities, land trust managers or bureaucrats who have no idea how to make a living from the land telling you how to run your business or what you can grow or animals(ie. type, or how many) you can raise on your own property.
The conservation easements I am familiar with are designed more for the tourist or already land-owning neighbors or the wealthy who want to preserve the view from the road or pretty vistas from their McMansions.  They love the idea of farming and not the reality.  This results, at least in my area, in land sitting idle on the market for years with inflated prices that is wonderful and useful but impossible to make a living from.
-fixie.

[Poeirenta]

I see someone has been drinking the same paranoid Koolaid as a few folks around me. Land Trusts don't have cabals of people micromanaging the landowners they hold easements with. If you don't believe me, I know several ranchers that can tell you about how their easement has kept them in business. Yup, they get an annual site visit to make sure the legal agreements in the easement are being adhered to, but since the landowner and their lawyer collaborated with the land trust to write the easement in the first place, violations are rare. Most of the ag folks I know want land to stay in agriculture not sprawl, and conservation easements are a tool that helps them achieve that goal while they keep producing food and fiber.

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[Rural]

We have a conservation easement on our property (governmental, for property tax purposes). Here, such a thing is not permanent but a ten-year renewable term, and while the county has the right to visit to see the property and compliance, they had that right already to assess for taxes.


As  we get older, we might do something like the sort of easement I think you're considering, but in our case probably not with a land trust but with the adjoining national forest.

[fixie]

I see someone has been drinking the same paranoid Koolaid as a few folks around me. Land Trusts don't have cabals of people micromanaging the landowners they hold easements with. If you don't believe me, I know several ranchers that can tell you about how their easement has kept them in business. Yup, they get an annual site visit to make sure the legal agreements in the easement are being adhered to, but since the landowner and their lawyer collaborated with the land trust to write the easement in the first place, violations are rare. Most of the ag folks I know want land to stay in agriculture not sprawl, and conservation easements are a tool that helps them achieve that goal while they keep producing food and fiber.

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Whatever dude.  I could post actual easements I have encountered, including with Land Banks and the US Forest Service.  Something tells me you don't farm or make a living from the land.  You failed to address a single point I made.