Photo: Jim O’Donnell
Like many rural communities in the West, the Taos area continues to experience development pressure from second homeowners, retirees, and other transplants. People are understandably drawn here by the natural beauty, outdoor recreation opportunities, and unique cultural diversity, but they unintentionally contribute to the slow gentrification of the area, unraveling the very values that brought them here in the first place. Additionally, irrigated farmlands that once produced food to feed the community — and could produce that food again — are scarce, comprising less than 8 percent of the landmass of Taos County. Those lands continue at risk, as they are typically the most attractive places for residential development. In most cases, irrigated lands are adjacent to riparian zones and other ecologically important areas and provide important wildlife habitat.
The mission of the Taos Land Trust is to conserve open, productive, and natural lands for the benefit of the community and culture of Northern New Mexico. We have long recognized the powerful connection between land and culture in the region and work to sustain both through a variety of initiatives.
The Taos Land Trust serves as a resource for landowners who voluntarily choose to conserve their land. Our landowners are typically motivated by a love of the land and a desire to see it preserved, as well as a wish to maintain open spaces, agriculture, and native wildlife habitats, and a strong will to pass their legacy on to future generations.
The voluntary conservation easement is one of the tools we use to help landowners protect their family lands. Landowners decide how their land will be used in the future by voluntarily retiring some or all of their development rights. They still own the land, are free to decide how they want the land used and are not required to provide public access. They can continue farming, ranching or other sustainable use or can sell it or pass it on to heirs. The protection stays with the land forever no matter who owns it.
Retiring development rights on private land is a real gift to the public and future generations. In recognition of that gift, we make sure that landowners at any income level qualify for all the federal and state tax breaks and other financial benefits they are entitled to.
Conservation easements aren’t for everyone, or for every piece of property. But for those who are interested, this section addresses some of the frequently asked questions surrounding conservation easements so landowners can make a more informed decision about what is right for their land and their families.
Q: What is a conservation easement?
A conservation easement is a voluntary agreement between a landowner and a land trust that permanently retires some or all of your development rights. You still own the land and are not required to provide public access. You can continue to use the land for farming, ranching, or other sustainable uses. You can reserve sites for barns, other agricultural buildings, or limited home sites (within reason), and you can sell it or pass it on to your heirs. But the protection stays with the land forever no matter who owns it. Once a land trust creates a conservation easement with a private landowner, the land trust takes on a permanent public trust responsibility to enforce that agreement in perpetuity.
There are significant costs involved in completing a conservation easement, but with the current tax and financial benefits available to most landowners, those costs are covered, and then some.
In order to be eligible for federal and state tax benefits, a donated conservation easement must meet strict federal and state guidelines. Among other requirements, a “qualified” easement must be granted in perpetuity and meet at least one of these conservation purposes described in the regulations:
• The protection of relatively natural habitat of fish, wildlife, or plants, or similar ecosystem;
• The preservation of open space (including farmland and forest land) either for the scenic enjoyment of the general public or pursuant to a clearly delineated governmental policy and that will yield a “significant public benefit”;
• The preservation of an historically important land area or a certified historic structure; and/or
• The preservation of land areas for the outdoor recreation by, or education of, the general public.
Creating a conservation easement for your land can take anywhere from three months to a year or more, but the experienced staff at Taos Land Trust will work with you through the entire process.
Q: What is a land trust?
A land trust is a non profit, tax-exempt organization that works to conserve land in a community for its agricultural, recreation, cultural, historical and scenic values. A land trust is also a private, non governmental organization that can work with landowners to protect private lands. Land trusts can work with the community in a variety of ways to protect land: they accept donations of land or funds to purchase lands, they can accept a bequest of land, can purchase land outright or can accept the donation a conservation easement. The Taos Land Trust has worked with landowners who have donated their easements and who have also donated their lands, such as the Rio Hondo Park and Ponce de Leon Hot Springs, now owned by Taos Pueblo.
Q: What is a charitable contribution of land?
Even though the public may never enter your land, a permanent conservation easement is still a significant public benefit: you are preserving land to grow food and fiber, protect wildlife, maintain healthy watersheds, and provide beautiful views. The state and federal governments recognize that public gift as a charitable contribution with significant tax incentives.
The charitable contribution is basically the value that you give up in your land, or the value of the development rights that you retire. Appraisers will use a “before and after” method, where the “before” value is a typical real estate appraisal of full market value; the “after” value is the reduced value once certain development rights are retired through the conservation easement; and the difference between the two is the conservation easement value, or your charitable contribution. The more development rights you retire, the greater the reduction and therefore the greater the value of your contribution.
For example, using simple numbers: If you own a property with a full market value of $2 million (before value), it could be reduced in value to, say, $1,200,000 with a conservation easement (after value). The difference of $800,000 is the appraised value of your conservation easement, which constitutes your charitable contribution.
Q: What are the tax benefits from a conservation easement?
The Federal Income Tax Deduction currently allows any conservation easement landowner to deduct up to 30% of their Adjusted Gross Income (AGI) each year from federal income tax for up to 6 years, or until they use up the appraised value of the conservation easement.
The Federal Estate Tax Benefit can be essential for passing undeveloped land intact to the next generation. By removing the land’s development potential, the easement typically lowers the property’s market value, which in turn lowers potential estate tax. Beyond the appraised value of the land, IRS allows the taxable value of property with a conservation easement to be reduced up to 40% more for estate tax purposes, which will usually bring the tax bill well below any amount that is exempted from estate tax. Conservation easements placed postmortem within a certain amount of time also qualify for this benefit. Estate tax policy is a moving target and continues to change year to year, but planning ahead will minimize the chance that your heirs will have to sell the land just to pay the estate tax.
In New Mexico, the state Land Conservation Tax Credit is one of the few transferable conservation tax credits in the country, which allows landowners to sell their tax credits to a third party for direct income. Landowners at any income level can qualify for a tax credit worth 50% of the appraised value of the conservation easement up to a maximum of $250,000. Multiple landowners on the same deed can each qualify for a separate tax credit. Working through an established brokerage system, most landowners get a net payment of about 80% of the face value, or up to $200,000 per credit. Once the credit is established it can be used or sold over 20 years.
Q: Will I still own my land if it has a conservation easement?
Absolutely, you maintain ownership of your land. Landowners retain title to their property, along with the right to sell, lease, borrow against, bequeath, and manage their land. By placing restrictions on usage and development, a landowner is voluntarily giving up a portion of their rights, but the Taos Land Trust does not control all that you do on the land. We work with the landowner to negotiate the terms of the easement together, and each easement is tailored to the unique character of the land and each landowners’ individual goals and values. Anyone considering a conservation easement should hire experienced legal counsel and should not sign an easement that does not meet the needs and desires of their family. The land does not become government property and remains on the tax rolls.
Q: Can I still develop my land if it has a conservation easement?
While most agreements prohibit large-scale subdivision or development, mining and non-agricultural commercial and industrial uses, they don’t have to prohibit all future development. They are intended to be flexible enough to allow for limited residential development.
Q: Does a conservation easement mean I can’t sell my land?
The property is still in your ownership – a conservation easement does not prohibit you from selling your property. It can, however, make the sale of your property a little more challenging. That said, many conserved properties change hands each year. Note that a conservation easement will typically reduce a property’s value by 35% to 65% depending on the restrictiveness of the deed, and the property’s type and location. A conservation easement will also typically extend the time it takes to market and sell a property. The property is sold with the conservation agreement attached and the new landowner will be subject to the same restrictions as you were.
Q: Must I make the land accessible to the public?
The agreement, called a “conservation easement” can be a confusing term. However, you can be assured that conservation easements do not require public access. While a landowner may choose to allow public access, there is no obligation to do so.
Q: How long is the term of a conservation agreement?
The agreement will “run with the land,” binding the original owner and all subsequent owners to the agreement’s restrictions in perpetuity. Only perpetual easements can qualify for income and estate tax benefits.
Q: What about my water rights?
A conservation easement in the premier way to tie water rights to your land, forever. Water rights that have been deeded to land encumbered by a conservation easement are typically restricted to use on the land in perpetuity, and cannot be sold off of the land by future landowners. Many conservation easement owners include language that allows for short term leasing of water rights, in order to provide income during years when land is fallowed due to personal choice or drought.
Q: Will I still be able to get a loan for my property?
Because conservation easements reduce the value of the property, the size of a loan available for mortgaging a property may be reduced, but banks will continue to offer loans that are collateralized by property with a conservation easement.
Note 1: In general, once you place a property under conservation easement, you must collateralize the entire encumbered parcel.
Note 2: Placing a conservation easement on property that is currently mortgaged, requires a subordination of the mortgage by the lender prior to conveyance of the conservation easement.
Q: Will I get audited by the IRS if I put a conservation easement on my property?
Although there is no way to predict the actions of the Internal Revenue Service, the vast majority of conservation easement transactions completed have not received undue scrutiny. As with any charitable donation, following IRS regulations and the national Land Trust Alliance’s (link to LTA) standards and practices will help support a landowner in defense of any potential IRS audit. Landowners should thoroughly investigate the land trust they intend to partner with and choose contractors that complete the due diligence requirements wisely.