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The Tax Benefit For Protecting Land

The Tax Benefit for Protecting Land

Every so often we will see a family who has land that has been in the family for generations and has great sentimental value as a result.  The problem often faced by the current generation of landowners is how they ensure that the property remains as is and within the family for generations to come after they have passed on.

Protecting the land for generations

As future generations inherit the land and the rights associated with it, the easy decision often is to sell it.  While the financial benefit of the sale is great, seeing the family farm replaced with townhomes might not always be how past generations saw things playing out.  The good news is that there is a solution for the current owners to protect the land for future generations and receive a significant tax benefit for doing so.

As I mentioned earlier, owning land comes with a number of rights such as the ability to build, sell, lease, and develop.  The landowner can also choose to give up some of these rights through what’s called a conservation easement.  This is typically done in coordination with a land trust, typically a non-profit organization that actively works to conserve land and monitor and defend the easement (findalandtrust.org).

When the landowner gives up these rights, they often can continue to use it in its current capacity whether that is to farm, or maintain the family cabin and continue to reside on the land.  However, any future development of the land would be disallowed in perpetuity.  The easement binds all future generations to also comply with these terms, thus preserving the land “as-is” for all future generations.

In return for doing so, there can also be a significant income tax benefit.  The land has value in its current state but if the land were to be sold on the open market it would be valued at its “highest and best use.”  For instance, the family farm might be worth just $500,000 but the same land if sold to a developer to build townhomes might be worth $1,000,000 to that developer.  Since you are giving up the opportunity to sell at the higher value you can receive a significant income tax deduction for forgoing the development of the land.

The conservation easement can be a complicated transaction requiring a qualified appraisal, working with a land trust, as well as input from an attorney and accountant but it is a great tool to protect land and receive a great tax benefit in return.

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