A conservation easement is a legal agreement between a landowner and a land trust or government agency that permanently limits future development of the land in order to protect its conservation values.

The terms of the easement are negotiated between the landowner and the organization that will hold the easement (the vast majority of easements in Virginia are held by the state-established Virginia Outdoors Foundation).

The primary provision of a conservation easement is a limit on subdivision of the property.

Landowners continue to own, use, and control their land, and can sell it or pass it on to heirs.

Easements generally allow for the continuation of current uses such as agriculture, forestry, hunting, and fishing.

An easement does not require landowners to provide public access to their land.

Depending on the size of the property, the landowner may retain the right to build one or more additional structures, or do one or more subdivisions.

Easements protect the land "forever" - the terms of the easement apply to all future landowners.

The organization holding the easement is responsible for making sure the easement's terms are followed.

What are the benefits of donating an easement?

The primary reason landowners donate conservation easements is to preserve the natural, scenic, and historical integrity of their land forever. Many want to establish a legacy for their children and grandchildren. Most value the peace of mind knowing that their land will be always protected from development.

In addition, there are significant income tax and estate planning benefits. In order to be tax-deductible, the easement: a) must be given in perpetuity; b) must be given to a qualified governmental or non-profit organization; c) must have a qualified appraisal; and d) must be donated exclusively for "conservation purposes" (in other words the property must have some significant natural, scenic, historic, scientific, recreational, or open space value).

The Capital Region Land Conservancy is providing the following summary of the tax benefits of conservation easements for informational purposes only. Please consult your attorney and/or accountant for professional advice on the implications for your own tax situation.

1. Federal Income Tax Deduction. The donation of an easement is treated as a charitable gift and the value of the easement (the value of the property pre-easement minus the value of the property post-easement) may be deducted from the donor's income for purposes of calculating income taxes. However, if the property has been owned for less than one year, the deduction is based in the percentage of easement value as it is applied to the basis of the property. The basis is essentially the purchase price (plus any capital improvements). Easements donated can be deducted at the rate of 50% of the donors adjusted gross income per year and the unused portion of the gift may be carried forward for an additional fifteen years or until value of the donation is fully expended (whichever comes first). Farmers who receive more than 50% of their income from agricultural activities can deduct up to 100% of their income.

2. Virginia State Income Tax Credit. For easements donated after January 1, 2007 the donor is eligible for a Virginia income tax credit that is equal to 40% of the value of the donated easement.  The credit can be claimed in the year of the donation and carried forward for an additional 10 years or until fully expended (whichever comes first). In addition, any transfer or sale of registered tax credits after January 1, 2007 will trigger a 2% or $10,000 (whichever is smaller) fee on the amount of the donated interest.

For example, a landowner who pays $10,000 in state income tax each year donates an easement in 2007 worth $500,000, and thus has a credit of $200,000 (40% of $500,000). The landowner can personally use $110,000 in income tax credits ($10,000 each year for 11 years) and sell the remaining $90,000 at a discount and with a transfer fee.

3. Estate tax reduction. In 2006, estate taxes can be as high as 46% of the value of the donor's estate. In many cases, a landowner's heirs must sell the property in order to pay the estate taxes. By donating an easement, landowners can reduce these taxes in two ways:
• First, the total value of the estate will have been reduced by the value of the easement (smaller estate value means less-or perhaps no-estate tax due).
• Secondly, the American Farm and Ranch Protection Act of 1997 allows heirs to exclude up to an additional 40% of the remaining value of their land from the taxable estate.

4. Reduced real estate taxes. In counties where "use value" taxation is in place, land subject to an easement is automatically entitled to taxation at use value rates. In localities that do not have use value taxation, land under easement is required to be assessed without regard to the development value that has been extinguished by the easement.