§ 14.5 - Real Property Tax Consequences
Jurisdiction | Washington |
§14.5 REAL PROPERTY TAX CONSEQUENCES
Two real property tax issues arise with conservation easements. The first is the taxability of conservation easements on their transfer and on the holder of the easement. The second is the reduction of ad valorem taxes on property encumbered by conservation easements. The opportunity to reduce ad valorem taxes can be an important motivation for landowners to restrict development by conveying conservation easements.
(1) Real property excise taxes/ad valorem taxes on holders
The real estate excise tax may not apply to a transfer of a conservation easement because one of two exemptions from this tax, a gift of property or the sale of property to a government agency, will cover many transfers of these interests. See RCW 82.45.010; WAC 458-61A-201, -205. Conservation easements purchased by nongovernmental entities will not, however, be exempt.
Ad valorem property taxes on conservation easements held by nongovernmental entities also are not likely to be incurred. Even though all real property is potentially subject to tax, RCW 84.36.005, less than fee interests typically will not be taxed separately when the fee is privately held. See Clark-Kunzl Co. v. Williams, 78 Wn.2d 59, 63-64, 469 P.2d 874 (1970) (owner's interest is taxed without any reduction for partial interests held by others—the "unit assessment rule"), superseded by statute on other grounds, as noted in Duwamish Warehouse Co. v. Hoppe, 102 Wn.2d 249, 254, 684 P.2d 703 (1984)).
Nonprofit organizations, furthermore, should qualify for an exemption from ad valorem taxes under most circumstances. RCW 84.36.260; WAC 458-16-290 (exemption does not include land held primarily for recreational activities).
Practice Tip: | Easement holders should consider including a clause in the instrument requiring that the fee owner be responsible for all taxes associated with the conservation easement. |
(2) Reductions of ad valorem taxes on encumbered property
Property owners who encumber their property with conservation easements can attempt to reduce their property taxes through either of two processes. First, they can seek a reduced assessment through the assessor and board of equalization. Second, they can participate in a current use assessment program. Although in theory the amount of property taxes to be paid should be comparable, other factors such as the transaction costs of securing the tax reduction and the potential imposition...
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- Summary
- § 14.1 - Introduction
- § 14.2 - Conservation Easements Distinguished from other Easements
- § 14.3 - The State Statutory Framework
- § 14.4 - Federal Tax Consequences
- § 14.5 - Real Property Tax Consequences
- § 14.6 - Valuation and Gift Substantiation Requirements
- § 14.7 - Transfer of Conservation Easements
- § 14.8 - Duration and Termination of Conservation Easements
- § 14.9 - Environmental Liability
- § 14.10 - Additional References
- § 14.11 - Forms and Checklists (included on the CD Accompanying this deskbook)
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