Protection by Conservation Easement

A conservation easement is a way for a landowner to voluntarily place permanent restrictions on future use of his or her land, thereby protecting its particular natural attributes. This legal agreement provides for a conservation agency to hold the easement and enforce the restrictions. Your responsibilities and rewards of ownership continue, and unless specified otherwise, you retain full control over public access.

Conservation easement enabling legislation allows a property owner to dedicate an easement to a unit of local government, or to a non-profit agency incorporated for conservation purposes. In McHenry County, the typical receivers of conservation easements tend to be municipalities, the McHenry County Conservation District, the Illinois Nature Preserves Commission, and The Land Conservancy of McHenry County.

The restrictions placed in a conservation easement are tailored to suit your particular property and situation. Generally, the restrictions are placed on the property in order to retain its natural, scenic, historic, or open space characteristics, and to protect against inadvertent or intentional destruction of those features. For example, the easement may state that the land will remain in a natural, undisturbed condition, or it may allow some limited use, such as farming or timber management.

A conservation easement may be placed on all or a portion of your property. For instance, you may wish to protect a stream and a prairie buffer along it, and still be allowed to develop the rest of your land. The restrictions, then, would only apply to that part of your property described in the easement. The remainder of your property, not under an easement, may increase in value because of the adjoining protected land.

A conservation easement is permanent and binds all present and future owners of the eased land. It is recorded like any other title interest, and goes with the land whether it is transferred by sale, by gift, or by devise.

Monitoring and enforcement of the restrictions is the responsibility of the conservation agency holding the easement. You may continue to use and enjoy the land in the same way that you always have as long as you comply with the terms of the easement, which you have negotiated cooperatively with the conservation agency. Easements normally are written with language that encourages good land stewardship practices.

People grant conservation easements because they wish to protect land that is important to them, and to preserve its landscape features for the future. Their greatest reward is the sense of satisfaction at having protected something of value. However, the financial benefits of granting a conservation easement in perpetuity can also be important.

A conservation easement will affect the market value of the land to the extent that it limits its potential development and use potential. It is the effect on the market value that is important when considering the financial aspects of easements.

Income Taxes
Depending on your own financial situation, a conservation easement may provide positive economic benefits in terms of income, estate, and property taxes. If you place an easement on your land, you may be entitled to a charitable contribution deduction on your income taxes, based on the value of that easement. To qualify you must meet the criteria established by the Internal Revenue Service. The value of the deduction is the difference in the property's value before and after the easement is conveyed. For example, suppose you purchased your property 10 years ago, and never built a home on it. Today, its fair market value is $60,000. After you put an easement on it, the land is appraised at $20,000. You can deduct $40,000 (60,000 - 20,000) from your taxable income on your income tax return. Because the IRS has limits to the amount that can be deducted at one time, normally this deduction is spread over several years.

You should have a qualified appraiser determine the value of your charitable deduction. In most cases, the tax law requires that you obtain a written appraisal before the tax return is filed for the year of the deduction. A summary of the appraisal, signed by the appraiser and the conservation agency, must be attached to the return. The costs of the appraisal and any surveying or legal fees are also deductible.

Estate Taxes
Assuming that your land is part of a taxable estate, federal and state taxes may have to be paid based upon the appraised value of the property at the time of your death. All too often, land must be sold by heirs in order to pay for these estate taxes, which may be surprisingly high because of increases in land value over time. Because the granting of an easement typically lowers the appraised value of your property, the estate taxes will be similarly lowered. This lowered tax may mean the difference between your heir's ability to keep the property in the family, or the necessity of selling the property to pay the taxes. In some cases, the reduction in value might bring the value of the estate below the tax exemption limit, and free the heirs from paying estate taxes.

Gift Taxes
If you give your land to an individual prior to your death, that individual may owe a gift tax to the IRS. If that property has a conservation easement placed on it, the tax amount due may be reduced or eliminated altogether, due to the lower value of the property.

Property Taxes
You may also receive a property tax benefit. Conservation easements do not remove land from the property tax roles, but because of Illinois law (P. A. 88-657) which took effect on January 1, 1995, property (outside of Cook County) which is encumbered by a conservation easement, and which is certified by the Illinois Dept. of Conservation as demonstrating a public benefit, will be assessed at 8- 1/3% fair market value, instead of the typical 33-1/3%. However, the property must meet certain criteria before achieving certification. Thus, not all properties with conservation easements will receive this tax benefit.

In summary, the conservation easement is an effective and flexible land protection technique. It allows you to retain ownership and receive tax advantages, and it represents a tangible commitment to the preservation of McHenry County's natural heritage and rural landscape.