The Yale Law Journal


Conservation Easement Tax Credits in Environmental Federalism

19 Mar 2008
Christen Linke Young

Faced with a frustrating lack of federal leadership, environmentalists are increasingly focusing their energy on state and local efforts to protect our natural heritage. Many high profile projects, however, rely on unpopular mandatory standards and conflict with federal regulatory priorities. Consequently, programs like the California and Vermont fuel efficiency standards have met with political resistance at both the state and federal levels. As an alternative, states interested in resource preservation are increasingly reliant on tax incentives to encourage voluntary efforts. State conservation tax credits, for example, incentivize the private creation of conservation easements—restrictive covenants that permanently protect land from future development. Conservation easements have emerged as an effective tool for habitat protection, erosion control, and landscape-level resource conservation. Moreover, easement incentive programs find broad political support because they leave landowners with substantial control over their property. Thus, conservation tax credits are politically viable even among constituencies that do not traditionally embrace environmental goals.

A conservation easement essentially splits the “Blackstonian bundle” of property rights, permanently extinguishing the landowner’s right to use her land in particular ways. For example, an easement might prevent building additional structures or clearcutting woodlands. The easement is granted to a conservation entity (a nonprofit organization or government agency) that is then obligated to enforce its prohibitions on development in perpetuity. Because conservation easements restrict future use, easement-protected land has diminished market value; parcels sometimes lose fifty or even eighty percent of their value. Landowners, however, may recoup some of the costs by deducting the easement as a charitable donation on their federal income taxes. State tax credits leverage this federal incentive to maximize land and resource protection in the state.

Twelve states—California, Colorado, Connecticut, Delaware, Georgia, Maryland, Mississippi, New Mexico, New York, North Carolina, South Carolina, and Virginia—have adopted conservation easement tax credits. These programs use a stunning variety of approaches to reward landowners. For example, both Georgia and New York enacted new easement tax credits in 2006. The Georgia program provides a lump sum credit of twenty-five percent of the fair market value of the donation, up to $250,000 for individuals and $500,000 for corporations. New York, on the other hand, offers an annual credit of up to $5000 to offset the property tax paid on easement-protected acreage. What the programs share, however, is enthusiastic support from across the ideological spectrum, from conservative Georgia Governor Sonny Perdue to New York's liberal state legislature.

Several states are exploring potential new tax credits incentivizing conservation easements. As these states look to implement their own programs, they must resolve several important questions about the structure of an easement tax credit.

I. Targeted Environmental Protection

Conservation easements offer an enormously flexible tool that can be used to conserve privately-owned timber, maintain a rural landscape, or assemble a migratory bird corridor. Despite their potentially broad scope, however, tax credit initiatives need not reach all types of conservation in the state. Mississippi has the most restrictive program, available only to landowners that protect designated “Scenic Streams” or “Natural Heritage Program” resources. The Connecticut tax credit promotes a related set of goals, including “scenic resources” and “natural streams,” but, unlike Mississippi, Connecticut does not require that the state specifically designate the resources in need of protection. However, Connecticut does limit the credit to corporate (as opposed to individual) taxpayers because they are most likely to hold the large parcels of land that are important for this kind of conservation. Finally, programs in states like Colorado and South Carolina cast the widest net, granting credits to any easement donor that qualifies for the federal tax deduction. Clearly, state legislatures can use conservation easement tax credits either to target a specific regional need or to broadly promote conservation.

II. Maintaining State Control

Conservation easements are non-regulatory and entirely voluntary—when the easement is donated to a non-profit organization, there is no governmental actor involved. While this approach is attractive to landowners, especially in the resource-rich but libertarian-oriented western states, some state governments are uncomfortable with such expansive delegation. States have adopted three types of approaches to maintain control over these programs. First, all states retain the authority to audit donors to ensure that protected land complies with program requirements. Second, some states require state agencies to certify that easement donations conform to the conservation goals or appraisal requirements in the state statute. Third and most restrictive, Maryland makes the program available only to landowners donating easements to a state entity. While states may find certification or control techniques appealing, extensive government involvement may deter potential donors. Indeed, easement donors in the west are often hostile toward “environmental regulation” and want to avoid perceived government intrusion. Thus, states should be attentive to the sensitivities and political biases of land and resource owners as they design control structures.

III. Magnitude of the Credit

Of critical importance to landowners—and state budgets—is the value of the credit granted to taxpayers. In the conservation easement context this encompasses three related issues: the basis for calculating the credit value, caps on maximum value, and the number of years over which a credit may “roll over” to offset tax liability.

The vast majority of states base the amount of the tax credit on the decrease in market value. In these states, the more land value the landowner “gives up” by creating the easement, the greater the credit. Generally, though, the state awards only a portion (twenty-five to fifty-five percent) of the lost value in tax credits. Only two states take different approaches: Mississippi awards a credit only for the costs of negotiating an easement, and New York allows easement donors to deduct their local property tax from their state tax bill.

Since conservation tax credits can be incredibly valuable, many states cap the maximum credit a donor can claim. Caps range from $80,000 in Maryland to $375,000 in Colorado. A few states, including South Carolina, do not place any limits on the total credit claimed by a taxpayer, but most state programs have adopted statutory maximums.

Finally, most states offer a carry forward period, allowing easement donors anywhere from five to twenty years to take advantage of the credit. For example, a taxpayer with $50,000 in credits but paying only $10,000 in state income tax could avoid state tax liability for five years.

IV. Transferability

For many landowners, even generous carry forward provisions do not allow them to fully realize the total value of their tax credit. Farmers and ranchers, for example, can donate easements worth millions and accrue hundreds of thousands of dollars in tax credits. But because of their relatively low incomes they do not usually incur large tax liabilities. To benefit these landowners, three states make their credits transferable. Easement donors can then sell credits to an unrelated taxpayer to claim on his tax return. Many conservationists view transferable credits as their most effective tool for land protection, since transferable credits offer donors an immediate cash benefit in exchange for an easement. Indeed, the Conservation Resource Center, a nonprofit organization that coordinates the resale of transferable credits, recently released a study illustrating how transferable credits can dramatically accelerate land conservation.

However, transferability poses two unique problems. First, easement tax credits are resold on private markets for about seventy-five percent of their face value, so the state foregoes more tax revenue than the landowner receives in cash. This invites questions about efficient use of limited state resources.In addition, there is growing concern that by creating a large, liquid asset, transferable credit programs invite tax fraud.Landowners may partner with unscrupulous nonprofits, donate easements that do not offer adequate conservation, or use inflated appraisals to claim unjustified credits. Indeed, allegations of fraud in Colorado’s transferable credit program have attracted federal attention, leading the IRS to open audits on hundreds of Colorado easement donors. Ultimately, adequately addressing the transferability question may be one of the tougher problems confronting states that are considering their own easement tax credits.


Conservation easement tax credits offer an attractive and bipartisan approach to conservation. States as geographically and culturally distinct as Massachusetts, Idaho, and West Virginia are all investigating new easement incentive programs. The twelve states with existing credits also illustrate great ideological diversity, both within and beyond environmental politics. This diversity affects how states chose to structure their programs—shaping decisions about the level of government control, the type of conservation supported, and the need for transferability. However, despite differences, these twelve states have leveraged tax credits to contribute to the protection of more than 5.5 million acres of land. Easements incentives have allowed landowners to flexibly conserve New Mexico prairie land, New York watersheds, North Carolina beaches, and other irreplaceable resources throughout the country.

Christen Linke Young is a second-year student at Yale Law School. From 2005-2006 she served as the Public Policy Specialist for the Land Trust Alliance, where she worked on federal tax policy affecting conservation easements. The views expressed here are the author’s and do not reflect the position of the Alliance.

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Preferred Citation: Christen Linke Young, Conservation Easement Tax Credits in Environmental Federalism, 117 Yale L.J. Pocket Part 218 (2008),