By Guy Arad

Q. What is a conservation easement? What are the tax advantages to a conservation easement? Can a condo or co-op vote to place a conservation easement?
— Curious in New York

A. According to Guy Arad, Esq. of the Law Offices of Adam Leitman Bailey, P.C. in Manhattan:
“An easement is a transfer of usage rights. Simply put, a conservation easement is an easement that restricts development rights on property through contractual obligation,” says Guy Arad, Esq. of the law offices of Adam Leitman Bailey, P.C. in New York.

“The easement can be either sold or donated, and is held by a qualified conservation organization or a government agency. The restrictions are spelled out in a legal document that is recorded in the local land records, and the easement becomes part of the chain of title for the property. The primary purpose for a conservation easement is to prevent development on the land or to preserve scenic, natural or other values that the land may hold. To qualify, the easement must be perpetual; held by a qualified governmental or non-profit organization; and serve a valid „conservation purpose.? A valid conservation purpose includes preservation of wildlife habitat, open space, scenic views or agriculture.
There are several tax advantages to a conservation easement, including income tax deductions and estate tax reductions and exclusions.

Income Tax Deductions: Landowners who donate a conservation easement to a qualified land protection agency may be eligible for a federal income tax deduction equal to the value of the donation (Internal Revenue Code 170(h)). This value is equal to the difference between the fair market value of the property before and after the easement takes place, i.e., the difference between the value of the land if used for a higher value purpose, such as development, and the value of the land with the restriction. For 2007, conservation easement donors may also deduct the value of their gift at the rate of 50 percent of their adjusted gross income per year, and land owners with 50 percent or more of their income from agriculture may be able to deduct the donation at a rate of 100 percent of their adjusted gross income (H.R.4 – The Pensions Protection Act of 2006). Any amount of the donation remaining after the first year can be carried forward for fifteen additional years, or until the amount of the deduction has been used up, whichever comes first. At the end of this year, the expanded federal incentives will expire if they are not reauthorized by Congress and the old rules (deducted at the rate of 30 percent of AGI with only a five year carry- forward) will be back in effect.

Estate Tax Deductions: Reductions in estate taxes can also be realized from conservation easements. A conservation easement will reduce estate taxes because the decedent?s estate will be reduced by the value of the donated conservation easement. As a result, taxes will be lower because heirs will not be required to pay taxes on the extinguished development rights. Additionally, 40 percent of the value of the land (subject to a $500,000 cap) may be excluded from the estate when the landowner dies (The New York Times – „Talking: Easements; Preserving Land With Tax Cuts” (2/11/1990): For example, four undistinguished acres in a four acre zone with a house already on the site is unlikely to qualify for a conservation easement.). Heirs may also receive tax benefits by electing to donate a conservation easement after the landowner?s death and prior to the filing of the estate return, called a „post mortem election.?

As a general rule, yes, a condo or a co-op could choose to donate or sell a qualifying conservation easement. There is no reason that a condo or co-op could not do what any other form of ownership can do. To find out the procedure a particular condo or co-op would have to follow in order to grant the easement, one would have to consult the individual building?s bylaws and/or declaration. However, although the easement is a possibility, it is not necessarily a practical option for property owners in New York City. One thing to consider is that the conservation easement is permanent—all future owners must abide by the conditions of the easement—and the easement usually prevents development of the land. Another consideration is that not all parcels of land will qualify for the easement, and the co-op or condo probably won?t own enough land or open space to qualify. The IRC requires a definite conservation purpose, including preservation of a „significant? piece of open space, and the definition of „significant” is unclear.? Also, the easement may be difficult to place on land that is currently being financed because up to 10 percent of the property value may be required to be placed in a trust for monitoring and enforcement purposes.

Lastly, in addition to the goal of conservation, one of the purposes of the conservation easement is to gain a tax advantage for the owner. The co-op or condo must evaluate the actual benefit to each individual shareholder or unit owner before attempting to put the easement into place. The tax benefit might not be worth the effort.”