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 2014 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, 2014:

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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 meet the requirements for the Conservation Grant Fund created in G.S. 113A-232.

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 2014 as long as it is has a qualifying conservation easement that meets the requirements of the Conservation Grant Fund. The property is legitimately in PUV at the time in 2014 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 2014 for this provision because it should have already been disqualified.

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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 non-easement 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 meets the property eligibility requirements of the Conservation Grant Fund.

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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 meets the requirements of the Conservation Grant Fund. 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 meets the eligibility requirements of the Conservation Grant Fund.

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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 meets the property eligibility requirements of the Conservation Grant Fund, 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 meets the eligibility requirements for the Conservation Grant Fund. 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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