Conservation Agreements: Frequently Asked Questions

      The conservation agreement can provide the solution to the dilemma that many Upstate landowners are struggling with today: How to keep their land from being obliterated by intensive development and yet capitalize on the property's increased value. The conservation agreement can be used to establish a "win-win" plan that protects the important resources and features of the land while providing both financial and tax benefits to the property owner.

We have met too many landowners in the Upstate who have told us they wished they had known about conservation agreements before selling their property. We have met too many sons and daughters who have said they wished their parents had known about conservation agreements. These discussions inspired us to establish our Land Trust Program. If you own a significant tract of land and you care about what happens to it, we hope that you will consider the information provided on this web site. Please contact us if you need more information or would like to meet.

What Is A Conservation agreement?

A conservation agreement, also known as a conservation easement is essentially a contract between the landowner and an organization like Upstate Forever in which the landowner relinquishes some or all the rights to develop the property. Contrary to what some people think, a conservation agreement does not open up private property to public use. It is for the landowners to decide if they want to allow any public use of the property. In most cases, title to the property, along with the right of exclusive use and enjoyment, remain with the landowner.

What Restrictions Are Placed On Property By A Conservation agreement?

It depends. Conservation agreements are flexible and can be tailor-made to meet the needs and desires of the landowner. In cases involving farmland, for example, the landowner typically will reserve the right to continue growing and harvesting crops on the property and to construct and repair buildings and facilities related to that use. In other cases, the landowner can reserve the right to build a certain number of structures. In fact, in most of the conservation agreements received by Upstate Forever, the landowner has reserved the right to build a limited number of homes on the property.

What Exactly Are The Tax Benefits?

The donation of a conservation agreement/easement can qualify as a tax deductible contribution if the following requirements are met:

• It is donated in perpetuity;
• It is donated to a qualified charitable organization, such as Upstate Forever;
• It is donated "exclusively for conservation purposes," defined in the tax code as accomplishing at least one of the following:
  • The preservation of land areas for outdoor recreation by, or the education of, the general public;
  • The protection of relatively natural habitat for fish, wildlife, or plants or similar ecosystems;
  • The preservation of open space (including farmland and forest land) where such preservation will yield a significant public benefit and is either (a) for the scenic enjoyment of the general public or (b) pursuant to a clearly delineated federal, state or local government conservation policy;
  • The preservation of a historically important land area or certified historic structure.

The Land Trust Alliance publication, Conservation Options: A Landowner's Guide, summarizes these requirements as follows: "In essence, the income tax deduction is reserved for the protection of conservation resources that truly provide significant public benefit. However, an agreement does not have to cover all of the property, preclude all use or development, or allow public access in order to qualify for a charitable deduction."

If the conservation agreement qualifies, the landowner is entitled to an income tax deduction equal to the difference between the value of the land with the agreement and its value without the agreement, as determined by a qualified appraiser. In general, the amount that can be deducted in one year is limited to  50  per cent of the landowner's adjusted gross income. If the value of the gift exceeds  50  per cent, it can be carried forward for up to fifteen additional years. (Qualified farmers, earning more than 50% of their income from agriculture or timber operations, may be eligible to deduct up to 100% of their adjusted gross income.)   These tax incentives are available for conservation agreements granted in 2006 and 2007. 

Whether or not the conservation agreement qualifies as an income deductible gift, it can significantly reduce or even avoid estate taxes. This is because the agreement is a legally enforceable, publicly recorded agreement that must be considered in determining the value of the property. For owners who are "land rich-cash poor," a conservation agreement can literally save the land by not forcing the heirs to sell the property in order to pay the estate tax

Congress has provided another significant incentive to landowners to place conservation agreements on their properties. Section 2031(c) of the Internal Revenue Code provides that 40 per cent of the value of the land subject to a conservation agreement (not to exceed $500,000) may be excluded from the landowner's estate, provided the agreement meets the requirements for income tax deductibility and the agreement reduces the value of the land by at least 30 per cent. For example, if a qualifying agreement reduces the value of the property from $2 million to $1 million, an additional $400,000 (40 per cent of the $1 million value) may be excluded from the taxable estate.

Contrary to popular belief, Congress did not repeal the estate tax! The tax will be gradually phased out over the next several years and disappear completely in 2010, but the relief is short-lived: The following year (2011), the estate tax rates that applied in 2000 become effective again.

The South Carolina Conservation Incentives Act provides that landowners who have qualified for and claimed on their federal income tax return a charitable deduction for either a gift of land for conservation or the granting of a conservation agreement on their land may claim a state tax credit, which is a dollar-for-dollar reduction in the amount of South Carolina income tax owed. The amount of the state credit is equal to 25 per cent of the total amount of the federal deduction, subject to two caps: the credit cannot exceed $250 per acre, and the total amount of the credit used in any one year cannot exceed $52,500. Any unused credit, however, can be carried forward to succeeding taxable years. There is one other notable aspect of the new law: the credits can be transferred or sold. This means that a landowner who may not need the tax credit can give or sell it to another person, provided the transaction is approved by the South Carolina Department of Revenue.

Does Upstate Forever Have Any Criteria For Accepting Conservation agreements?

Upstate Forever is committed to ensuring that its Land Trust Program results in real public benefits and that the land protection obligations assumed by Upstate Forever in perpetuity can be achieved. Therefore, we evaluate every potential project with great care pursuant to specific written criteria.

What Is Upstate Forever's Responsibility Upon Receiving A Conservation agreement?

Upstate Forever assumes the basic legal responsibility of ensuring compliance with the terms of the conservation agreement. It meets this obligation by regularly inspecting the property and if necessary, taking the appropriate steps to enforce the agreement (including litigation as a last resort). In essence, Upstate Forever becomes the property's "watchdog."

How Does Upstate Forever Meet This Responsibility?

Upstate Forever has established a separate "Land Stewardship Fund" and uses the interest earned on this fund to pay for the costs of inspecting and enforcing conservation agreements. We will ask the landowners to make a contribution to this fund at the time the conservation agreement is granted. Upstate Forever takes very seriously its obligation to ensure the permanent protection of the property. Thus, we appreciate the landowner's understanding that it takes funding to meet this obligation.

Are There Other Options For Preserving Land?

Yes. Although the conservation agreement is the most widely used tool for preserving private land, there are several other options that Upstate Forever would be glad to discuss with the landowner. One of these is an outright donation of the land, in which the owner transfers title to Upstate Forever or a government entity. In this case, the owner can claim an income tax deduction equal to the land's current fair market value, and it is not necessary to satisfy the "public benefit test" or any of the other requirements that apply to conservation agreements. And of course, donating the property completely removes it from the owner's estate and avoids any additional property taxes.

Another option is a bargain sale in which the owner sells the property for less than its fair market value. In that case, the amount of the deduction would be "the bargain," that is, the difference between the fair market value and the sales price.

Other options include the donation of a remainder interest (the owner continues to live on the land and at his death title is transferred to the land trust); donation of the land by will; and leases and management agreements.

Should The Landowner Obtain Independent Advice?

Absolutely. Upstate Forever will be glad to discuss conservation agreements and other options for preserving the owner's property, but we cannot provide legal or financial advice, nor can we guarantee that a particular conservation plan will qualify for a tax deduction or otherwise meet the owner's financial objectives. Thus, the landowner should consult with his or her own attorney and financial advisor to determine which conservation plan makes the most sense.

Where can I find more information on the web?

• Land Trust Alliance
• IRS bulletin: Charitable Contributions and Conservation easements
  July 12, 2004
• S.C. Department of Revenue Publication:  Local, State, and Federal Tax Aspects of Conservation Easements
• IRS Starts Team on Easement Abuses
  Washington Post
  June 9, 2005
• Testimony of Burnet R Maybank, III, Director South Carolina Department of Revenue before the Senate Committee on Finance hearing: "The Tax Code and Land Conservation : Report on Investigations and Proposals for Reform"
  June 8, 2005
• Conservation tax incentives should be preserved
  March 6, 2005
  Opinion by Brad Wyche and Dana Leavitt in the Greenville News
• Fraudulent preserves costing taxpayers
  February 27, 2005
  by Paul Alongi of the Greenville News
• Easements a growing tool for conservation
  December 9, 2003
  by Jason Zacher of the Greenville News

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