One of the more interesting concepts of the last few years is how to join the issue of conservation with the cost of purchase.  In the case of redwoods, obviously the value at the mill is going to be added to the cost of the property.  But in an era of considerable political opposition to cutting forest products, a buyer strictly interested in harvesting trees can be up against considerable and costly opposition.  

Many other property values are conservable.   Prohibition of subdivision so that the larger ranches can be preserved in tact obviously has a value.  Watershed, grazing rights, open spaces, non-development, all of these are property rights that can potentially be preserved and become the basis of rights donated for tax purposes.

Both Buyers and sellers have available to them today the concept and practical implementation of a conservation easement.  The concept of a a conservation easement, of course, requires no special explanation other than one’s objective to preserve and protect a stand of aesthetically valuable trees.  But how does a seller preserve them beyond their personal ownership and, just as importantly, what is the possible financial offset for buyer or seller to enter into such an arrangement?

To this end, a number of local and regional non-profit environmental organizations have been established for the purpose of planning, maintaining and long term perpetual oversight of conserved properties.   These organizations ordinarily employ foresters, biologists and other professionals who can help plan and implement environmentally friendly long term oversight of a small to medium size ranch.  Typically, areas are set aside on a property both for the narrow protection of the asset to be preserved, and the wider scope of the surrounding ground with a  view to indirect preservation eg watershed, erosion control, encroaching non-native specie protection.

Once a plan is in place, the non-profit organization sets a minimal schedule once to several times a year for a physical review of the property to determine preservation is being maintained.  An endowment fund is set up that allows this process to become perpetual. In effect, the trees belong to the non-profit-but not the land they stand on.   Actual physical inspection(s) are limited as to not be an intrusive element in the underlying ownership of the property.

And therein lies the financial off-set.  The trees, watershed, subdivision rights, mineral or farm rights are donated to the non-profit, and the value of the property is devalued for tax purposes,  the difference becoming tax deductible.  In a typical scenario, the value of the trees at the mill, farm rights, subdivision resale or other property rights are appraised before donation and after donation.  The appraised loss of short term and long term value can then be deducted against ordinary income in an amount equal to 30% of the diminished value in each successive tax year until depleted.  Bottom line, you can have much of the value of logging, subdivision or farming deducted from income without the taking or development of the asset!

There are additional costs in setting up a conservation easement: appraisal, forest plan, endowment.  These costs are also deductible also.  Buyers should seek professional tax accounting advise as a condition of purchasing and utilizing a conservation easement.   In particular, it must be decided “who” is doing the donation.  If it is the “seller”, then the buyer needs to purchase at a figure the takes into account the lost value in the resale marketplace.  If it is the buyer, then care must be taken to insure that the charitable donation is not a “requirement” of the sale for the buyer to have this deduction available after purchase.  Our company is set up to handle this speciality in the marketplace.