The tax implications of easement sale can be a good news/bad news dilemma for some landowners. By removing the development rights from your land, you likely reduce the value of the property and thereby your estate. Especially for families whose primary asset is their land, this can be critical in preventing the farm from being sold to pay estate taxes. On the other hand, receiving a large lump sum of cash when a conservation easement is sold can trigger capital gains taxes. Careful planning is important to protect your estate and to minimize taxes to you and your family.

For a detailed discussion of the role of conservation easements in easement planning go to Farmland Preservation: An Estate Planning Tool, a Fact Sheet of the University of Maryland Cooperative Extension Service:

http://www.agnr.umd.edu/MCE/Publications/
Publication.cfm?ID=138&cat=1

For a detailed discussion of capital gains taxes when preserving your land go to Taxes and Land Preservation: Computing the Capital Gains Tax, a Fact Sheet of the University of Maryland Cooperative Extension Service:

http://www.agnr.umd.edu/MCE/Publications/
Publication.cfm?ID=139&cat=1

Like-kind exchanges. A method of minimizing capital gains liability not mentioned in the Fact Sheet above is the use of the proceeds from an easement sale in a like-kind exchange of property. Capital gains taxes that would normally be due on the sale of development rights are deferred under this arrangement when the cash payment for the easement is used to purchase real estate. You should consult a real estate attorney if you are a landowner thinking about selling an easement and also buying more land.

An explanation of this tool, along with several examples, is available on page 160 of Holding Our Ground: Protecting America's Farms and Farmland by Tom Daniels and Deborah Bowers, published by Island Press, 1997.