Transcript Conservation Easements

Chapter 8
Conservation Easements
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Conservation Easements
• Conservation easements come in varying forms and
restrict property rights based on the particular desires
of the person granting the easement.
• It is possible for a property owner to convey a
restrictive conservation easement and still qualify for
present-use value, without any special provisions, if
the easement allows the owner to continue to farm or
timber the land for commercial production under a
sound management program designed to obtain the
greatest net return from the land.
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Conservation Easements
• However, if the easement restricts farming
or forestry to the point that the land cannot
be managed for commercial production, the
land will no longer qualify for PUV, unless
the land meets the requirements under the
special provision for certain qualifying
easements as described in this presentation.
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Exception for Qualifying
Easements
• Effective for the 2010 tax year, the General
Assembly revised the original special provision
(effective January 1, 2003) that allows present-use
value properties encumbered with certain qualifying
conservation easements to continue in present-use
value without regard to actual production or income
requirements. The following are the requirements
effective as of January 1, 2010:
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Requirements
1. The property must be in present-use value at the
time qualification for this provision is being
determined.
2. The property must be legitimately receiving
present-use value. If the property is receiving
present-use value at the time qualification for this
provision is being determined but does not actually
qualify for present-use value, the property should
be disqualified. Therefore, the special provisions
described in this presentation would not apply.
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Requirements
3. The easement must be enforceable and must
meet the qualifications for the conservation
income tax credit.
4. Effective January 1, 2010, the taxpayer may
not have received more than 75% of the fair
market value of the donated property interest
in compensation.
In other words, the
taxpayer must have donated at least 25% of
the market value of the easement.
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Requirements
5. The easement can have been donated at any time in the
past but must meet the requirements of the law in place
at the time qualification for this provision is being
determined. Example: A property on which an
easement was at least 25% donated in 1998 can qualify
for this provision in 2010 as long as it is an enforceable
easement that qualifies for the tax credit and the
property is legitimately in PUV at the time in 2010 that
the determination is being made. If the 1998 easement
prohibited commercial ag, hort, or forestry production,
or if the property was taken out of production, the
property cannot qualify in 2010 for this provision
because it should have already been disqualified. 7
Special Provisions
•
If the property and the conservation
easement meet all of the above
requirements, the following special
provisions apply to that part of the
property that is subject to the easement:
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Special Provisions
1. The property will remain in present-use
value and no deferred taxes are due.
2. The property is no longer subject to
production requirements.
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Special Provisions
3. The property is no longer subject to
income requirements.
4. The property is probably no longer subject
to the size requirements. This provision is
not stated in the statutes but seems to be
consistent with the intent.
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Special Provisions
5. If the property is transferred, the
additional ownership requirements on the
conditions of the transfer do not apply.
For instance, the property does not have to
transfer to a relative, or be the owner’s
place of residence, or transfer to a member
of the business entity if transferring from a
business entity.
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Special Provisions
6. However, the provision in #5 above does not
remove the requirement that the property be
owned by a qualifying owner. It only
means that a new qualifying owner does not
have to meet the additional ownership
requirements in G.S. 105-277.3(b) and (b1).
The new owner must still be an owner that
meets the definition of individually owned in
G.S. 105-277.2(4).
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Special Provisions
7. If transferred to a new owner, a new
application would need to be filed by the
new owner stating their desire for the
property to remain in present-use value.
The application must be filed within 60 days
of the date of transfer or the property will
become disqualified. Present-use value is a
voluntary program and the tax office cannot
make the participation decision for the new
owner.
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Overlapping Provisions
• If a conservation easement meets all of the
above requirements but does not restrict
farming or forestry, the property owner may
not need these special provisions if the
owner continues to farm the property.
However, the provisions are available if the
owner should subsequently desire to stop
production on the easement acreage.
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Additional Points
• These special provisions apply only to the
part of the property that is subject to the
easement.
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Additional Points
• The qualifying easement land is not
required to be in production, but the
easement land is also not considered to be
in actual production and does not count
toward the minimum size requirement for
classification of non-easement land. Only
land enrolled in the Conservation Reserve
Program can be considered in actual
production when it is actually not in
production.
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Additional Points
• The remainder of the tract that is not subject
to the easement must continue to meet all of
the requirements for present-use value
classification. Failure to do so will result in
the disqualification of the non-easement
land and the deferred taxes on the noneasement land will become due and
payable.
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Conservation Easement
Examples
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1-Q
• Owner has a 30-acre tract in agricultural
PUV and all acreage is planted in crops.
The owner received 100% compensation for
a conservation easement placed on the
property, and the easement prohibits all
development but allows all forms of
commercial agriculture.
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1-A
• Property will continue to qualify for PUV if
the owner continues to farm the property.
Since the owner received 100% compensation
for the easement, the owner will have to
continue to farm the property to retain PUV.
The owner is not eligible for the additional
provisions for certain conservation easement
property because the owner did not donate at
least 25% of the fair market value of the
easement.
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2-Q
• Owner has a 30-acre tract in agricultural
PUV and all acreage is planted in crops.
Conservation easement is fully donated on
the property, and the easement prohibits all
development but allows all forms of
commercial agriculture.
The easement
qualifies for the conservation tax credit.
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2-A
• Property will continue to qualify for PUV. Since
the owner donated at least 25% of the fair market
value of the easement, the owner may continue to
farm the property or may elect to cease farming.
The owner is eligible for the additional provisions
for certain conservation easement property
because the easement was at least 25% donated
and qualifies for the conservation tax credit.
Therefore, the owner may chose to discontinue
farming and will still qualify for PUV.
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3-Q
• Owner has a 30-acre tract in agricultural
PUV and all acreage is planted in crops.
The owner received 100% compensation for
a conservation easement placed on the
property, and the easement prohibits all
development and also prohibits all forms of
commercial agriculture.
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3-A
• Property will be disqualified from PUV.
The owner cannot continue to farm the
property and therefore cannot qualify under
the standard commercial production criteria.
Additionally, the owner is not eligible for
the additional provisions for certain
conservation easement property because the
owner did not donate at least 25% of the fair
market value of the easement.
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4-Q
• Owner has a 30-acre tract in agricultural
PUV and all acreage is planted in crops.
Conservation easement is fully donated on
the property, and the easement prohibits all
development and also prohibits all forms of
commercial agriculture.
The easement
qualifies for the conservation tax credit.
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4-A
• Property will continue to qualify for PUV. The
owner cannot continue to farm the property and
therefore cannot qualify under the standard
commercial production criteria. However, since
the easement was at least 25% donated and
qualifies for the conservation tax credit, the owner
is eligible for the additional provisions for certain
conservation easement property. The owner does
not have to continue to farm the property.
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5-Q
• Owner has a 30-acre tract that is not in
agricultural PUV and all acreage is planted
in crops. Conservation easement is fully
donated on the property and the easement
prohibits all development and also prohibits
all forms of commercial agriculture. The
easement qualifies for the conservation tax
credit.
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5-A
• Property will not be able to qualify for
PUV. The owner cannot continue to farm
the property and therefore cannot qualify
under the standard commercial production
criteria. Additionally, the owner is not
eligible for the additional provisions for
certain conservation easement property
because the property must be in PUV at the
time the easement was donated.
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6-Q
• Property has been subjected to a fully
donated conservation easement that
qualifies for the conservation tax credit.
The land is no longer required to be in
actual production. The owner transfers the
property to an individual.
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6-A
• The property must continue to be “individually
owned”. Since an individual meets the definition
of “individually owned”, the individual can take
ownership without being subject to the standard
ownership requirements (such as length of
ownership, transfer to relative, and place of
residence) or to the exceptions to the standard
ownership requirements (such as Continued Use).
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