Landowners who want to ensure their farmland will be farmed for generations to come can consider a conservation easement to limit its future development even if they later sell the land.

A conservation easement is a voluntary agreement between a landowner and a land trust, a private, nonprofit organization that works to conserve the land. In this type of agreement, the landowner "gifts" the conservation easement to the land trust. The landowner, in turn, benefits from federal income tax deductions.

"Granting a conservation easement means the development rights for the land have been transferred, by a deed, to an organization qualified under Section 501(c)(3) of the Internal Revenue Code, such as a land trust," said Gerry Harrison, Purdue Extension agricultural economist. "The organization holding the easement has the responsibility to see the land is not developed for anything other than the landowner's retained purposes, such as agricultural production or perhaps some limited structures such as a homestead."

In other words, the landowner maintains ownership while the land trust ensures that the terms of the conservation easement are followed. The landowners can reserve the right in the conservation easement deed to build a house or farm facilities, and, according to Harrison, they should be careful to consider those options before entering the legally binding contract.

The conservation easement remains in effect even if the land is later sold, giving assurance that the land will be used as the owner had intended.

The standard tax rule for a gifted conservation easement limits the charitable deduction to 30 percent of the donor's contribution base (adjusted gross income computed without regard to any net operating loss carry-back to the taxable year), Harrison said. Amounts not deductible in the year of the gift are carried forward and deducted for up to five years.

Still in force, at least until the end of 2011, is a 2006 federal tax amendment that greatly enhances the deduction for gifts of conservation easements. Generally, for conservation easements, the amendment permits a deduction for the charitable contribution of 50 percent of the contribution base, minus other charitable deductions on the taxpayer's Schedule A, and extends the carryover period from five to 15 years.