Open Space Protection Collaborative
About Us Advisor Tools Tax Incentives Frequently Asked Questions Resources Events Working Lands Home


The American Farm and Ranch Protection Act of 1980 added a very significant tool for land preservation. Section 2031(c) says that you can exclude up to 40% of the land value up to $500,000 from your estate in addition to the reduction in value attributable to the easement.

Mr. Bridges owns farmland near the Uwharrie Forest. The land is worth $5,000,000 before placing it under easement and $2,500,000 afterward. He dies soon thereafter. The value of the land for estate tax purposes is $2,500,000. In addition, his estate qualifies for the 2031(c) exclusion so his estate receives an additional deduction of $500,000. (40% of 2,500,000 is $1,000,000 but the maximum is $500,000)

The Power of Two
Assume the example above but Mrs. Bridges is alive. Their estate is set up to take advantage of Mrs. Bridges’ right to a Section 2031(c) exclusion keeping another $500,000 out of the estate.

Total savings from the conservation easement:
Reduction in value = $2,500,000
Mr Bridges’ exclusion = 500,000
Mrs Bridges’ exclusion = 500,000
Total removed from estate $3,500,000

To Qualify for the Exclusion:
You must first qualify under section 170(h).
The executor of the estate must choose whether or not to elect exclusion under section 2031(c) on or before the due date of the estate tax return.
The land must be located in the U.S. or a U.S. possession.
The decedent or a member of his family must have been the donor of the easement and must have owned the land subject to the easement for at least three years prior to decedent’s death.
  Planning note: This provides opportunity for multi-generational estate tax savings. Mr. Walter places a conservation easement on the family farm. His daughter inherits the farm. When she dies. the farm continues to be eligible for the 2031(c) exclusion as long as it stays in the family of the original donor.
The easement must prohibit all but minimal commercial recreational use of the land. (The executor can amend an existing easement that fails to comply with this rule.)
The easement must be donated.
Section 2031 (c) was originally written to require that land be within a certain mile radius of urban or other preservation property. That rule was dropped and replaced by the National Park or Wilderness Area Rule. Eligible land can claim the credit unless it is excluded because it is “not under significant development pressure.”
Easements solely to protect historic assets are not eligible.
  Planning note: Many historic properties can avoid this exclusion by drafting a conservation easement that also meets one or more of the other conservation purposes tests under 170(h).
Exclusion applies to the value of the land only, not buildings.
The exclusion is not available for value of land subject to mortgage.
Land subject to “retained development rights” is also excluded. Development rights can be excluded post mortem by agreement of all beneficiaries.
To discourage marginal easements, the 40% exclusion is reduced by 2% for every percentage the easement is worth less than 30% of the total value of the land.
  Example: Mr. Bridges places an easement on his $3,000,000 land with minimal restrictions. The easement reduces the value of his land by 20% to $2,400,000. The value of his exclusion is: (30%-20%) x 2=20%. His exclusion is limited to 20% x $2,400,000 = $480,000.

The values used to determine what percentage of the property’s value is encumbered by the easement are the values at the time of donation. Section 551 of 2001 tax bill (H.R. 1835, P.L.. 107-16)

The portion of property receiving the exclusion will have a carryover basis instead of a stepped-up basis. For example: Mr. Bridges grants a $1,000,000 easement on his $2,000,000 property. His basis is $500,000 before and $250,000 after the easement. He dies shortly thereafter and his estate excludes 40% under Section 2031(c). The basis of the $1,000,000 property to his heirs is $700,000. (40% of $250,000) + (60% of $1,000,000) = $700,000.

If the conservation property is owned by a partnership, corporation or trust, it may be eligible for the 2031(c) exclusion if at least 30% of the entity was owned by the decedent. The amount excluded under Section 2031(c) is reduced pro rata by the percentage not owned by the estate. Ownership is determined under the same rules governing qualified family owned business interests in Section 2057(e)(3).

The cost basis in the land is reduced by the amount of exclusion claimed.


Section 2031(c) allows the estate to make a post-mortem donation of a qualified easement for conservation purposes. This is a key opportunity for keeping land in the family. The estate can receive a charitable deduction for the donation of an easement and also receive the additional 40% or $500,000 exclusion, and the land remains in the hands of the family.

Example: Mr Bridges died before he was able to complete a qualified conservation easement (QCE) on his $3,000,000 forest land in the Uwharrie Forest. The heirs agreed, so the executor elected to implement a post-mortem easement. The value of the easement was $1,500,000 for which the estate received an estate tax charitable deduction under Section 2055(f) . They further reduced the value of the estate by $500,000 via the exclusion rule. Instead of $3,000,000 being included in the estate only $1,000,000 is included. Two million dollars of land is transferred to the family without estate taxes, and subsequent generations will be eligible for the exclusion.

The post-mortem option is not a substitute for good planning. In NC, real property passes to the heirs at death. Disagreement among heirs may impede the use of this tool. The family loses the income tax deduction available when a qualified conservation easement is made during the lifetime. This tip is courtesy of luxury KLCC apartment experts at

The Open Space Protection Collaborative provides information to promote the proper use of easements and other conservation tools. This information is not intended to be tax or legal advice; individuals should consult their own legal and financial advisers before drafting, executing or donating a conservation easement.

Copyright © 2004 Open Space Protection Collaborative