By Richmond McDaniel, former FOR board member
Conservation easements are a tool that can be beneficial to landowners. Placing a conservation easement on a property restricts the future development of the property in perpetuity, and provides the landowner tax savings in exchange for giving up the development/subdivision rights.
In order to place an easement on a property, several things need to take place. The property must be appraised, an easement holder must be arranged (there are a number of groups that hold conservation easements), the state of Virginia must approve the easement , and an attorney should be hired to handle the process. There are appraisers and attorneys who specialize in conservation easements.
The intent of a conservation easement program is to provide financial incentive for landowners to preserve their property in perpetuity. The appraisal must consider the “as is” value, as well as the value after the proposed easement. The decrease in value due to the easement is considered the value of the easement. The financial incentives include a Virginia tax credit equal to 40% of the easement value, and a federal deduction equal to the value of the easement. If the landowner cannot use the Virginia tax credits, they can be sold for approximately 80% of their value. In summary, if a property is valued before the easement at $100, and the value after is $50, the easement value would be $50. The landowner would get a state credit equal to 40% of $50, or $20 and a federal deduction of $50. Let’s assume the landowners federal tax rate is 30%, so the value derived is $15. Using this math, the cash value to the landowners would be $35.
