In an ever-growing and fast-changing world, most Americans understand the essential role our environment plays in providing a high quality of life for our country, our communities and our children. Land conservation helps preserve scenic open spaces, protect wildlife habitat, improve water quality and safeguard important resources for future generations. Preserving land also plays an important economic role by helping our communities develop in a more sustainable and competitive manner.
A conservation easement is a crucially important tool in the effort to protect our nation’s most important land resources. It is a voluntary, legally-binding agreement that limits the future development of land forever. The property under easement remains privately owned, and activities such as farming, ranching, hunting and timber harvesting can often continue under the terms of the easement, but development – such as building a shopping center – is forbidden. Typically, a nonprofit land trust receives the conservation easement donation, and must monitor the property to ensure the easement’s restrictions are followed.
While the first conservation easement dates to 1891, the mechanism was not commonly used to encourage conservation until after 1976. Congress had reworked the tax code to allow landowners to report easements as charitable deductions to their federal income tax. Changes to the tax code have been made since that time, helping achieve the intended goal of incentivizing more land conservation.
Conservation easements allow people to protect privately owned land by permanently restricting future development. Land trusts only accept conservation easements when the donation has significant conservation values – such as relevance to clean water, wildlife habitat, agricultural preservation, scenic views, outdoor recreation, historic preservation or some other public benefit specified in the law. A conservation easement donation preserves the property’s conservation values in perpetuity.
Landowners donate easements for a variety of reasons, including protecting land for future generations, reducing tax burdens in exchange for giving up property rights and many other reasons. Congress recognizes the need to provide a financial incentive to encourage conservation, so landowners are eligible to claim a federal tax deduction for the value of the donated easement. This incentive is a crucial component in spurring more conservation activity and is no different from other charitable deductions that are meant to achieve a societal good.
Without the current tax incentive, more wetlands and beachfront property will be transformed into strip malls and condos — it’s that simple. In December of 2015, Congress enhanced and made permanent the conservation easement tax deduction through Section 170(h) of the Internal Revenue Code to encourage more of these charitable donations. Under the new law, landowners can claim a tax deduction for the value of the donated conservation easement, for an amount that may be up to 50 percent of their adjusted gross income. Farmers and ranchers who receive more than 50 percent of their gross income from agriculture can make a conservation easement donation and claim a deduction that may offset up to 100 percent of their adjusted gross income. This goal of the incentive was to encourage more conservation, and it is working as intended.
This legislation, H.R. 4459 and S. 2436, is a step backwards. We should be encouraging conservation efforts, not closing doors to participation. An organization representing land trusts supports spending taxpayer money for conservation, yet is working to make private conservation efforts more difficult for many current and future landowners. Sensible solutions exist to ensure any rare abuses are halted, but the proposed legislation has too many unintended consequences that are bad for private conservation and would eliminate a lot of land conservation. Moreover, the proposal of this legislation is coming at a time when public funding for conservation is drying up and there is as strong a need as ever to preserve our natural resources.
P4C is advocating for a legislative solution that accomplishes three goals:
- Enhance the definition of “qualified appraisal” to produce more accurate and well-substantiated valuations.
- Bolster the educational requirements to be a “qualified appraiser” in order to ensure appraisers have sufficient training and expertise.
- Produce greater visibility and transparency of conservation easement donations.
By legislating sensible solutions, Congress will ensure that conservation easements continue to be used to protect valuable land and environmental resources, while eliminating the rare instances of abuse that exist.
About Conservation Easement Donations from Landowners in the Form of a Partnership
Let’s start by remembering that land is a valuable, appreciating asset, and often represents a sizable percentage of a landowner’s total personal wealth. That’s why landowners are sometimes conflicted by their desire to conserve beloved property for the future and their need to tap the land’s financial worth today.
Landowners with lower incomes and relatively low income-tax obligations may not be in a financial position to make the decision to conserve their land. In these cases, the landowners may feel their only option to raise needed cash is to sell their land to a developer. However, there is another viable alternative. Landowners can team up with several family members, friends, or a group of unrelated individuals to form a conservation partnership. Consistent with established tax law, and under the same rules and regulations that apply to individual landowners, these conservation partnerships can then choose to make a conservation easement donation, utilize the tax incentive, and also conserve the subject property in perpetuity.
Donations from conservation partnerships allow environmentally valuable land to be conserved permanently. Approximately 20 million acres of land, roughly the size of the state of South Carolina, have been conserved since the current tax incentive was created in 2006. With more lands being conserved than ever before, why would we turn back the clock on a system that has been working as intended for almost 40 years?
How do these private sources of funding like private equity funds or conservation partnerships help land trusts fulfill their conservation mission? How do they benefit the public?
Conservation partnerships are a crucial tool in the effort to protect our nation’s most important land resources. But conservation is expensive, and in an era where government cannot fund the cost of conservation alone, significant new sources of private funding are required to preserve land and protect our resources for future generations. Whether the land being conserved is owned by an individual, a family partnership or an investment partnership that purchases and owns land — all play an important role in financing needed conservation projects. Conservation partnerships have led to a democratization of land protection efforts that benefits the environment every day and will be critical to ensuring the private sector can take on more responsibility in maintaining a healthy balance between economic growth and our environment.
Conservation easement donations by conservation partnerships represent a win-win-win scenario because they: (A) Allow environmentally valuable land to be conserved, (B) provide needed sources of funding to land trusts outside of just wealthy individual landowners and (C) cost the federal government no more than if the donation came from an independently wealthy individual.
Why are the IRS and other organizations representing land trusts concerned about some conservation easement donations by conservation partnerships?
They are concerned about tax deductions for conservation easement donations that may be based on an overvalued appraisal of the donation. Fortunately, when you consider any publicly available statistics, abuses of valuation with conservation easement donations are rare and are no more likely to come from a wealthy landowner, a family partnership or a partnership of unrelated individuals.
P4C agrees that common sense improvements to the conservation easement legislation can and should be made, and that’s why our best include detailed recommendations to help landowners identify qualified appraisers, substantiate the highest and best use for their property and confirm the appraised value. It’s also why we developed legislative proposals. It’s also important to remember that the current tax incentive was approved by both the Bush and Obama Administrations, and it opened the conservation movement to more Americans.
The warning signs are in the appraisal. To ensure proper valuation, appraisals should be up-to-date and accurately substantiate the highest and best use of the property — an industry-accepted standard that is used by appraisers, regardless of whether the client is an individual or a conservation partnership. Appraisals of conservation easements must be performed by a qualified appraiser who is authorized to appraise properties in the area, and the appraiser must attest to the fact that she or he has no conflict of interest. P4C also recommends that conservation easement appraisals are reviewed by at least one qualified third party for validation. Taxpayers and appraisers who overvalue conservation easements face significant tax penalties, and any unscrupulous appraiser risks losing their livelihood through revocation of their license. This is why P4C has put forth a number of best practices will ensure warning signs are identified and addressed.
P4C is a diverse coalition that advocates for the interests and rights of land conservation donors and land trusts. We work to ensure the long-term availability and integrity of conservation easement donations. Our members include representatives from the entire conservation easement ecosystem, including individuals, private companies, land trusts, sportsmen’s organizations, and conservation groups. We are committed to supporting the highest professional standards in land conservation.
P4C currently has members from more than 40 states and growing across all regions of the country including land trusts, local and national conservation groups, landowners (both individuals and companies), wildlife biologists, real estate professionals, attorneys, land planners, and other consultants and tradespeople involved in conservation.
P4C has three primary objectives. First, we stand for the highest level of integrity and best practices in private land conservation through conservation easement donations and Section 170(h). Second, we conduct outreach to help educate decision makers and the public about the importance and success of conservation easement donations. And third, we hope to maximize land conservation to benefit future generations by advocating for the effective, fair and compliant implementation of conservation donations under federal rules.
The U.S. population is projected to grow by 100 million and the amount of land covered with housing, roads and shopping malls will nearly triple by 2050.
Source: Land Trust Alliance
We lose 6,000 acres of wildlife habitat every day. That’s 2.2 million acres — an area the size of Yellowstone National Park — every year.
Source: Dept. of Forestry at the US Department of Agriculture