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IRS Section 1031 and Conversation Easements

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Services for Real Estate Pros with Atlas 1031 Exchange, LLC

The use of conservation easements have grown steadily since the 1970's permanently preserving millions of acres of natural wildlife, forestry and wetlands from urban sprawl and development. Conservation easements are created when the property owner transfer some or all rights to a qualified conservation non-governmental organization or government entity for a specific time or perpetuity.  The utility, government or conservation entity as owner of the easement has the legal right to prohibit development contrary to the easement agreement that establishes the restrictions specific to the piece of land.

The benefit to the property owner is they maintain title to the land, enjoy limited use that does not interfere with the easement and have preserved the property's natural habitat. As with any property right, easements may be donated or sold.  Donating land to a charitable organization may be eligible for charitable income tax deductions for the value of the contributed easement. If sold and the gain is substantial, the tax can be deferred by initiating a §1031 exchange, given the value of the replacement property is equal to or greater than the easement.  The 1031 tax deferral enables the property owner to divest into any real property.

 As always, 1031 tax deferrals should be reviewed with your tax or legal counsel. Exchanging conservation easements, development, stewardship or mitigation credits are subject to State law and require adequate planning.