Potential Financial Benefits for Landowners

One of the advertised benefits of conservation easements to landowners is that they may receive some sort of tax break, if qualified. In Minnesota, landowners may be eligible for: 1.) a reimbursement if the easement qualifies as a charitable deduction, 2.) reduced property taxes, or 3.) reduced estate taxes.

1.) Charitable Deduction

A conservation easement may be labeled as a charitable donation if the landowner donates the land to a land trust, such as the Minnesota Land Trust. The value of the easement (defined as the fair market value of the land before and after the easement) may count as a charitable deduction when the landowner is filing federal income taxes, but the IRS requires a qualified appraisal to be conducted first. In addition, for a charitable deduction to apply, the easement must be permanent, the land must be deemed to have real conservation value, and it must be held by a qualified organization or government entity. Also, only land donated, not sold, qualifies.

According to the MN Land Trust, many landowners that are involved with this organization choose not have an appraisal conducted on their land due to the high costs involved ($3,000-$7,000). Also, if a landowner's income is too low they may not make enough to take a charitable deduction against their income.

2.) Reduced Property Taxes

Property taxes, which in MN are set at the county level, have the potential to go down as result of a conservation easement. According to the MN Land Trust, whether or not a landowner's property taxes will be reduced as result of a conservation easement depends upon the county in which they are living and that county's priorities for conservation or development. For instance, if a particular county wants to increase their tax base and thus encourage development, they are not likely to encourage the use of conservation easements by lowering the property taxes of a piece of property under an easement. However, if the county wants to encourage conservation in their area because of urban sprawl, eroding shorelines, etc, they are more likely to reduce the property taxes of a piece of land under an easement. Putting a conservation easement your property is not a reliable method of lowering property taxes.

3.) Estate Taxes

Easements may aid in estate planning because they work to greatly reduce the fair market value of the land that is under the easement. This means that the heirs of the land will be left with a much smaller estate tax burden than they would have otherwise. This also helps with the more sentimental benefit of ensuring that your land remains in the hands of family members.

More on Taxes...

Above all, a representative from the Minnesota Land Trust stressed that many landowners do not enter into a conservation easement agreement because of any potential financial benefits but because of strong emotional attachment to their land and a strong passion for conservation. However, putting a conservation easement on a piece of property is a decision that should not be entered into lightly because of the potential impacts on both the landowner and the neighboring landowners. A conservation easement represents a loss of returns to either present or future landowners because of the development limitations that a conservation easement represents (Main et. al, 1998). This can be extremely harmful if property is the landowners only real asset.

Putting a conservation easement on a piece of land is a personal decision that has many spillover benefits to the greater community in terms of more open space, increased wildlife habitat, and place for recreation if open access is allowed. However, it has also been shown that this personal decision can negatively impact the surrounding community in terms of taxes. The property tax burden that had previously been placed on the development value of the conserved property must be shifted to surrounding properties, leading to a greater tax burden for neighboring landowners (King and Anderson, 2003). There might be cases where the transferred tax burden increases the value of the conserved land (King and Anderson, 2004). However, proximity to open spaces may also increase the property value of neighboring land due to the growing trend of homeowners seeking property close to natural spaces.

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