Estate Tax Exemptions For Conservation

It is no secret that the conservation of lands in the Magnolia State play an important role for Mississippi as well as our nation. And more importantly, for our children and grandchildren.

Conservation easements are the newest of tools available for private property owners to preserve property for a specific conservation purpose. Easements enable a property owner to protect habitats on their property while, at the same time, take advantage of substantial tax benefits.

To fully understand conservation easements, one needs to consider the rights that come with owning property. When one places a conservation easement on a piece of property, the owner may give up some rights (e.g., the right to develop the property, etc.) In other words, the property owner gives up only those rights which allow him or her to achieve the intended conservation purposes of the easement; all other rights of ownership remain unchanged. Restrictions on the use of the property are detailed in the easement, which is perpetual in length. The easement is a legal instrument that is recorded in a particular county.

On August 5, 1997, President Clinton signed into law a modified version of The American Farm and Ranch Protection Act, which provided an exclusion from the federal estate tax for property subject to a permanent conservation easement.

Section 508 of the Taxpayer Relief Act offers tax incentives to people who retire property and place a conservation easement on it rather than try to develop it. The provision was inserted in the reconciliation bill by the late U.S. Senator John Chafee of Rhode Island, and allows a 40 percent estate tax exemption for land committed to conservation. It sets a $500,000 cap on tax benefits.

The measure applies only to land within 25 miles of a federally designated metropolitan statistical area as defined by the Office of Management and Budget (i.e., Biloxi, Gulfport, Hattiesburg, Jackson, Memphis, Tennessee, including parts of DeSoto County and Pascagoula), national park (i.e., Gulf Islands National Seashore, Natchez Trace Parkway, Tupelo National Battlefield or Vicksburg National Cemetery), wilderness area or within 10 miles of an urban forest as defined by the USDA Forest Service (e.g., Gulfport, Jackson, Meridian, etc.).

The property must be owned by the descendent or a member of the descendent's family at all times during the 3-year period ending on the descendent's death. The property can be owned by a partnership, corporation or trust if at least 30 percent of the of the entity is owned (directly or indirectly) by the descendent. If there is a lienholder on the property, the lienholder must agree to the easement. Taxes are still paid on the property by the property owner.

Except for the restrictions described by the easement, the property owner retains all other rights which were conveyed when the property was purchased. Hunting, fishing, wildlife viewing and timber management can still be conducted.

However, this Act prohibits use of the property where more than a minimum use of the property for a commercial recreational activity is allowed. When the owner of such property is not the owner of the surface estate and mineral interests, the tax benefits associated with the conservation easement shall occur if the probability of such surface mining occurring on such property is so remote as to be negligible.

When one places a conservation easement on a piece of property, the owner can be assured that the property will remain in a natural state forever. The property owner is rewarded by the fact that the easement will promote his or her conservation ethic while receiving immediate tax benefits.

Conservation easements are increasing being recognized as a desirable tool for property owners interested in protecting their property. Through the efforts of private property owners we can be assured that Mississippi's cherished natural resources will be passed on to our children and grandchildren.

As in any conservation program, it is best to seek the advice of fish and wildlife and tax professionals with experience in the development of conservation easements.

The Act is the federal government's first tax incentive for voluntary land conservation in 20 years.

Photos by Michael Kelly