James Oliver - Texas Agricultural Land Trust

1. Introduction to Conservation
Easements
Working Hard for Working LandsTM
James Oliver
Chief Operating Officer

2. OUR MISSION
To conserve the Texas heritage of agricultural lands,
natural resources, and wildlife habitats.

3. What is a Land Trust?
• A private, non-profit 501c3 entity whose mission is
land conservation
• Known as the conservation easement “holder”
• Has the right to monitor and enforce the
conservation easement
• Typically visits the property once a year to ensure
that the terms of the easement are being upheld

4. What is a Conservation Easement?
A voluntary, negotiated legal agreement between a landowner and a
qualified conservation easement holder that permanently limits a property’s
uses in order to protect the property’s conservation values.
The legal glue that ties a property owner’s good intentions to the land in
perpetuity.

5. What is a Conservation Easement?
• Selectively removes rights from the title of the land
• Individually tailored
• Filed at the courthouse
• A legal agreement provided for under state law.
• Protects specific conservation values
• Generally perpetual in nature
• Runs with the land: binding on all future owners

6. Agricultural Conservation Easement
• Limits future non-ag use, but encourages ag enterprises
• Flexibility allows for economic changes
• Permits construction of new agricultural buildings, fences,
waterings, and residential dwellings
• Does not require public access
• Does not provide immunity from condemnation
• Can be terminated but only under rare circumstances

7. Purpose of Conservation Easements
• Protection of significant natural and ecological
resources
• Protection of historical resources
• Public access for recreation or education
• Protection of specific values
The purpose of an agricultural conservation easement
is to protect the viability and productivity of
agricultural lands while also protecting their
conservation values.

8. Types of Conservation Easements
• Donated easements are governed by IRS regulations,
must be perpetual to qualify for a deduction (Section
170(h) IRC)
• Purchased easements (Purchase of Development
Rights or PDR). Governed by the rules of the
organization funding the purchase. Term easement
possible, pending the funding organization’s rules.

9. Donated Conservation Easement Benefits
• Income tax deduction – considered a Charitable Donation
• Estate tax relief due to lowered appraised value
• Facilitates succession planning and relieves pressure on
heirs
• Binds a landowner’s good intentions to the land in
perpetuity
• Protects production and conservation values of the land
while eliminating the risk of fragmentation and non-ag
development

10. Tax Incentives
Enhanced tax incentives Made
permanent by Congress in 2015
• Can deduct against 50% of AGI
• Carry-forward 15 years (beyond
the year of the donation for a
total of 16 years)

11. Tax Incentive – How it works
LAND
VALUE
$2,100,000
$2,400,000
After
Conservation
Easement
Charitable
Contribution
Appraised Value Before
Conservation Easement
$4,000,000
Decrease in value 40%
$1,600,000
Valuation of a Conservation Easement

12. Tax Deduction – Enhanced Incentive
Let’s assume that the landowner’s annual adjusted gross income for
income tax purposes is $200,000, which remains constant.
The deduction resulting from the easement is as follows:
(50 percent of $200,000 = $100,000)
Year of Contribution $100,000
Carry Forward to Year 1 $100,000
Carry Forward to Year 2 $100,000
Carry Forward to Years 3 – 15 _ $1,300,000
TOTAL DEDUCTION $ 1,600,000
Bottom line: The Landowner is able to use up the entire deduction

13. Estate Tax Considerations

14. Estate Tax Considerations - Example
Jones Ranch
$33 Million $33 Million
Smith Ranch

15. Estate Tax Considerations – Case Study
Jones Ranch
$33 Million $33 $22 Million
Smith Ranch

16. Estate Tax Considerations – Case Study
FET / Sells to pay taxes / divisions for heirs
Jones Ranch
$33 Million $33 $22 Million
Smith Ranch
SOLD

17. Purchased
Agricultural Conservation Easements
• Agricultural Conservation Easement Program
(formerly known as the NRCS Grasslands Reserve Program and the
Farm & Ranch Protection Program)
• Passed within the 2014 Farm Bill
• FY18 Funding for ACEP is $250 million
• Up for re-negotiation in the FY18 Farm Bill
• Requires a non-federal cash match
Federal (Purchase of Development Rights)

18. State (PDR) – Texas Farm & Ranch Lands Conservation Program
• Managedby Texas Parks & Wildlife Department
• Oversight board = representatives from statewide agricultural
organizations
• Received a $2m appropriation in each of the last two legislative
sessions to provide the non-federal cash match
Purchased
Agricultural Conservation Easements

19. Local / Resource Specific
• City of San Antonio $360 million Aquifer Protection Initiative –
to protect drinking water
• City of Austin $50 million open space protection bond initiative,
2006 – to protect Barton Springs
• DoD – to create buffers around military installations
• Deepwater Horizon settlement funds – to mitigate the impacts
of the spill
• Mitigation banking – to mitigate impacts to
species or water
Purchased
Agricultural Conservation Easements

20. Negotiating the Conservation Easement
• Process essentially the same for
donated vs. purchased easements
• Determine reserved rights
• Get an appraisal
• Develop a “baseline report”
• Easement is executed and filed in
the real estate records at the
county courthouse

21. Pros & Cons

22. Benefits
• Income tax deduction - donated
• Estate tax relief due to lowered appraised value - both donated and purchased
conservation easements
• Facilitates succession planning and relieves pressure on heirs
• Binds a landowner’s good intentions to the land in perpetuity
• Protects production, natural resources and conservation values of the land while
eliminating the risk of fragmentation and non-ag development
• Convert equity to cash (purchased easements)
Can help landowners create a legacy
for future generations!

23. Potential Drawbacks
• High transaction costs in some cases
• Limited funding for purchased easements
• Sale of easement subject to capital gains tax
• Tax benefits generally only available to the
first generation
• Use of property is limited for the future
• Value of the property is reduced by the
conservation easement

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Texas Agricultural Land Trust Slides
Texas Agricultural Land Trust
1919 Oakwell Farms Parkway, Ste 100
San Antonio, Texas 78218
210-826-0074
joliver@txaglandtrust.org
www.txaglandtrust.org
CONTACT US