Exchanging Thoughts

Conservation Easements Preserve Land and your Wealth

Posted by Margo McDonnell on Mon, Sep 10, 2012

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This More More Monday addresses the 1031 exchange of conservation easements.

It is hard to drive thru any suburban area without seeing a placard stating a track of land has been permanently preserved. Local and state governments, as well as preservation and environmental groups, have spent countless dollars to conserve open space and minimize suburban sprawl over the last several decades.

After a freeze on conservation dollars in recent years, 1031 CORP. is starting see them flow again. These dollars are being spent for conservation easements, a perpetual easement in real property that is voluntary and restricts development of the land. In exchange for compensation, the easements run with the deed and prevent the current, as well as any future owner of the property, from improving it. 

Although these easements do not involve relinquishing title of the property, they are like-kind to real property for Section 1031 exchange purposes. Therefore, a property owner giving a conservation easement in exchange for cash can structure the transaction as a 1031 exchange and defer the capital gains. As the easement is considered real property, it can be exchanged for any other real property, including income producing property. Such transactions were allowed in Ltr Ruls 9851039 and 9215049.

To structure such a transaction, the exchange would need to be initiated before the easement documents are signed and money transferred to the property owner. The agreement between the owner and the party taking the easement would need to be assigned to 1031 CORP. and an Exchange Agreement signed. The proceeds would be paid to 1031 CORP. and deposited into an exchange account until other qualifying property is acquired. The 1031 CORP. Exchange Team can work with you during the planning process to simplify the transaction for you. 

Feel free to contact us with questions regarding your pending easement transaction. Utility easements, billboard easements, telecommunications tower easements and Transferable Development Rights (TDRs) are other types of real property that will discussed in future More More Monday posts.

Topics: like-kind property, 1031 exchange and conservation easement