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11/29/11 1 Landowner Considerations Re garding Conservation Easements Thomas R. Kelsey 713-968-2217 713-622-6158 (fax) [email protected] Copyright © 2011 Thomas R. Kelsey  All Rights Reserved

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Page 1: Tom Kelsey Lowres

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11/29/11 1

Landowner Considerations RegardingConservation Easements

Thomas R. Kelsey

713-968-2217

713-622-6158 (fax)

[email protected] © 2011 Thomas R. Kelsey

 All Rights Reserved

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What is a conservation easement?

•  An agreement between alandowner and a landtrust

•  Permanently restricts thetype of development

•  Created by Section170(h) of IRC and

Chapter 183 TexasNatural Resources Code

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How does it work?

•  1,000 acre hill country ranch valued at $3,500/acre -$3,500,000

•  “before” and “after” value

•  When subdivision potential eliminated value is $1,750/

acre – $1,750,000•  Charitable deduction -- $1,750,000

•  No restrictions against agricultural or recreational uses

•  Reserved building sites maintain flexibility

•  No public access

•  State and Federal government have no regulatoryinvolvement

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Why would one consider a conservation easement?

•  Preserve conservationvalues

•  Prevent heirs orsubsequent third

parties from “ranchetting” familyfarm or ranch

•  Income tax benefits

• Estate tax benefits

•  Gift tax benefits

•  Ad valorem tax benefits

•  All of the above 

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What are the income tax benefits?•  Donor is entitled to charitable deduction for difference between

 “before” and “after” value

•  Example of 1,000/acre ranch

•  Need to hire an appraiser

•  Before value -- $3,500,000 – valued at $3,500/acre

•   After value $1,750,000 – valued at $1,750/acre•  Charitable deduction -- $1,750,000

•  Deduction up to 50% AGI for 2011

•  Holding period issues

•  Deductible in year of donation plus 15 years

•  Net tax benefit approximately $525/acre

•  Proposed Senate and House bills to extend additional tax incentivesbeyond 2011.

•   Audit rate issues

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What are estate tax benefits?

•  Reduced value from$3,500,000 to $1,750,000

•  Saves $612,500 estate taxesbased on 35% rate

•  35% tax rate and $5,000,000exemption for 2010-2012

•  Section 2031(c) IRC excludes40% of $500,000 or another

$200,000 of value from estatetax calculation

•  Lowers value for making gifts

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What are ad valorem tax benefits?

• Most landowners qualify for ag-useor open space (wildlife

management)

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What are disadvantages of conservation

easements?

•  Perpetual restrictions limit flexibility for landowners andfuture generations

•  May restrict ability to finance – requires subordination

•  Elimination of development potential reduces marketvalue

•  Expense of completing easement – fees from attorneys,accountants, appraiser and maybe surveyor

•  Stewardship fee – mini – endowment for land trust

•  No surface mining for gravel, caliche, etc.

•  May have issues with oil and gas production

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What are advantages?

•  Preserve conservation values for future generations –family farm or ranch won’t be ranchetted

•  Tax advantages

 – Income tax deduction ($1,750,000 deduction in

example) – Estate and gift tax benefits

•  Can continue existing uses for agricultural andrecreational purposes

•  Maintain limited residential use with reserved buildingsites

•  No public access

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Land conservation issues•  97% of Texas lands are privately owned

•  Ownership in senior generation

•  Unless planning used, lands will be sold to pay Uncle Sam andmost likely fragmented

•  Texas A&M Study on land fragmentation – http://txlandtrends.org

•  Texas megapolis from Beaumont to San Antonio to Dallas – onemetro area

•  Losing our farms and ranches

•  Loss of agricultural production

•  Loss of wildlife habitat•  Loss of quail, doves, waterfowl, deer, etc.

•  Decline of hunting as a family heritage

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What can be done to

preserve Texas Open lands?•   Almost 50 land trusts in Texas now protect acres with

444,309 acres of conservation easements in 160 sites andanother 184,653 acres owned in fee in 191 sites.

•  Katy Prairie Conservancy protects 18,000 acres•  Use of PDRs for land-rich cash-poor farmers and ranchers

•  Katy Prairie example – Farm Land Protection Policy Act(USDA) 1,200 acres protected for $900,000 -- $750/acre

•  Texas Farm and Ranch Conservation Council formed byGovernor Perry

•  Bayou Land Conservancy – operates in 13 county areaaround Harris County – www.llt.org

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•  See website for Land Trust Alliance –www.lta.org 

•  See website for Texas Land Trust Council

(TLTC) – www.texaslandtrustcouncil.org •  Call Texas Land Trust Council – 512-236-0655

or [email protected] 

•  TLTC web site – Conservation Easements: A Guide for Texas Landowners

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Texas Nature Conservancy –www.nature.org/texas 

•  Katy Prairie Conservancy –

www.katyprairie.org 

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Landowner Considerations Regarding

Conservation Easements

Thomas R. Kelsey

713-968-2217

713-622-6158 (fax)

[email protected] Copyright © 2011 Thomas R. Kelsey

 All Rights Reserved