From the Desk of Mike Mollet

Don’t pave paradise to put up a parking lot.

Conservation easements protect our open spaces and natural resources and offer significant savings.

Special rules apply for “qualified conservation contributions” which allow you to retain significant ownership interests in real property while qualifying for a deduction. Essentially, to qualify, you must be willing to restrict the use of your real property for conservation purposes via an easement in perpetuity granted to a qualified organization. Additionally, restrictions must be placed on transfers by the donee. Here’s how the rules work:

The contribution must be of a “qualified real property interest” to a “qualified organization.” exclusively for “conservation purposes.” (All of these terms are discussed below.)

A qualified real property interest includes a perpetual conservation restriction, i.e., you would make a gift of an easement on your property limiting your use of it in perpetuity. The gift would be to a qualified organization, i.e., a charitable organization or governmental unit that has a commitment to protect the gift’s conservation purpose and the resources to enforce the restrictions. Conservation groups generally qualify.

The gift must be exclusively for one of the following conservation purposes:

1. The preservation of land areas for outdoor recreation by, or the education of, the general public. This includes preserving a water area for boating or fishing, or preserving a nature or hiking trail. The recreation or education use must be for the substantial and regular use of the public.
2. The protection of a significant relatively natural habitat of fish, wildlife, plants, or similar ecosystem. Public access may be restricted, e.g., to protect the habitat.
3. The preservation of open space (including farmland and forest land) for the general public’s scenic enjoyment or under a governmental policy. The public must receive a significant benefit.
4. The preservation of an historically important land area or a certified historic structure. Under this rule, an easement on a private residence may qualify.
   Detailed regulations have been issued for each category. If you believe you may have property that could be the subject of a qualified conservation contribution, I would urge you to contact me to conduct a detailed review to make sure the above qualifications can be met.

A significant advantage of making a qualified conservation contribution is that you can continue to use and enjoy the property (as long as the conservation easement restrictions are not violated). Thus, for example, you can donate an easement on scenic farmland next to a national park and continue to farm the property. Or you can donate a conservation easement on an historic structure you are using as a home and continue to reside in the home. Some degree of access may have to be granted to the public, depending on the circumstances, but this can be limited in a manner that permits your continued enjoyment of the property. (In most cases, however, retaining the rights to extract or remove minerals by a surface mining method will disqualify the contribution.)

There will be valuation and basis issues regarding the gift. The donated easement may be valued by comparing it to similar easements that have been valued. Or, it may be determined by comparing the value of the property without the conservation restrictions to its value subject to the restrictions. The difference will generally be the value of the gift. Then, you must adjust your basis in the property by subtracting the portion allocable to the gift. For example, if you make a qualified conservation contribution valued at $100,000 with respect to property the total value of which is $1 million, your basis in the property will be reduced by 10%: reflecting the fact that you have donated 10% of the property to charity. If your basis was $600,000 before the contribution, your basis in the property interests you retain will be $540,000.

Qualified conservation contributions can have estate tax implications as well. Your estate can qualify for a qualified conservation easement exclusion of up 40% of the value of land subject to a qualified conservation easement. (The exclusion cannot exceed $500,000.)

Significant income and estate tax benefits may be available to you if you own property that could be the subject of a qualified conservation contribution. If you are interested in pursuing this matter further, please give me a call.

Very truly yours,
Mike Mollet CPA