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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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  • 8/3/2019 Tom Kelsey Lowres


    11/29/11 1

    Landowner Considerations RegardingConservation Easements

    Thomas R. Kelsey


    713-622-6158 (fax)

    [email protected] 2011 Thomas R. Kelsey

    All Rights Reserved

  • 8/3/2019 Tom Kelsey Lowres


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    What is a conservation easement?

    An agreement between alandowner and a landtrust

    Permanently restricts thetype of development Created by Section

    170(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 regulatory


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    Why would one consider a conservation easement?

    Preserve conservationvalues

    Prevent heirs orsubsequent third

    parties fromranchetting familyfarm or ranch

    Income tax benefits

    Estate tax benefits

    Gift tax benefitsAd valorem tax benefitsAll 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 incentives

    beyond 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


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    What are disadvantages of conservation

    easements? Perpetual restrictions limit flexibility for landowners and

    future generations

    May restrict ability to finance requires subordination Elimination of development potential reduces market


    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 wont be ranchetted Tax advantages

    Income tax deduction ($1,750,000 deduction inexample)

    Estate and gift tax benefits Can continue existing uses for agricultural and

    recreational 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 and

    most likely fragmented

    Texas A&M Study on land fragmentation http://txlandtrends.org Texas megapolis from Beaumont to San Antonio to Dallas one

    metro 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 512-236-0655or [email protected]

    TLTC web site Conservation Easements: AGuide 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


    713-622-6158 (fax)

    [email protected] 2011 Thomas R. Kelsey

    All Rights Reserved