I know – the headline to this article sounds too good to be true, but it IS true! It’s called a “conservation easement,” it’s perfectly legal, and it may be the smartest financial move you ever make.
There is one caveat — you have to own land, a portion of which has not been developed. Maybe your family owns a large plot of land in the Idaho mountains. You have a cabin built on one corner and you love to go there to relax. Perhaps it’s your personal fishing lodge. You and the family don’t intend to ever build anything on the rest of the land — indeed, that’s part of the charm of the property. So you don’t really care about having the right to build on that property — that’s the part you’d be happy to give away.
The federal government will give you a major tax break if you give that right to build (which you don’t intend to use) away! You just need to find a charity, the Nature Conservancy for example, and make an agreement with them — the conservation easement. You agree to give them some of your rights — like your right to build a Walmart on your slice of paradise — and they promise not to exercise those rights forever. In return you get a giant tax break. In essence, you can look at how much your property was worth with the right to develop the land, and how much your property is worth now that you’ve given that right away, and deduct the difference from your taxes! In some cases this difference can be millions of dollars in deductions!
There are some limits, but Congress relaxed the restrictions recently, so the conservation easement is an even better deal than it used to be. You can deduct up to 50% of your income and carryover the deduction for up to 15 years. If you are classified as a farmer or rancher, you can deduct up to 100% of your income! For example, if you qualify as a rancher and you earn $65,000 per year, you could deduct that $50,000 this year and for each of the next 15 years (as long as your easement was valued sufficiently highly), for a total deduction of $1,040,000!
If you own land where you are using less than all of the land, you should consider a conservation easement. And, if you are thinking about one, contact the Learned Lawyer for help in determining whether a conservation easement — or any of many other planning tips and tricks — might be right for you.