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With buildings responsible for over 1/3 of global CO2 emissions, the shift toward sustainable real estate is growing. Government incentives, stricter regulations, and rising demand make green properties a smart investment. 1031 Exchanges offer investors a tax-efficient way to transition into eco-friendly properties or fund sustainability upgrades, aligning financial growth with green practices. In this blog, we explore key sustainability trends, investment opportunities, and how 1031 Exchanges can support the transition to green real estate. 
The Rise of Sustainable Buildings 
Cities and companies around the world are setting strong carbon neutrality goals, driving innovation in sustainable building practices. The World Green Building Council estimates that green buildings can cut carbon emissions by up to 50% compared to traditional structures, and hundreds of cities globally have committed to achieving carbon neutrality by 2050. Additionally, green building certifications like LEED (Leadership in Energy and Environmental Design) and BREEAM (Building Research Establishment Environmental Assessment Method) are becoming more important to new construction projects, as organizations place greater emphasis on sustainable decisions. 
Investment Potential 
Sustainable properties not only contribute positively to the environment, but also present significant investment opportunities. Opportunities include:

Market Stability: Green buildings tend to be more resilient to market fluctuations, due to their lower operational costs and long-term value, offering a more stable income stream. 

Higher ROI: Sustainable properties often command higher property values and premium rental rates, leading to a higher return on investment. 

Institutional Support: Environmentally conscious investors, including many https://www.accruit.com/blog/passive-real-estate-investments-reits-and-… Estate Investment Trusts (REITs) are increasingly drawn to green real estate, recognizing its potential for long-term growth. 

Government Regulations and Incentives  
In the United States, federal, state, and local governments actively promote sustainable real estate through various policies, regulations, and financial incentives designed to encourage green development. 
Key Policies 

Stricter Building Codes: Regulations now require higher energy efficiency, water conservation, and use of sustainable materials in construction. For example, the International Green Construction Code (IgCC) provides a comprehensive approach to building design, construction, and operation, establishing mandatory green standards for buildings.  

Carbon Emission Regulations and Incentives: Policies are being introduced that penalize high carbon emissions, encouraging businesses and builders to adopt greener practices. The Inflation Reduction Act (IRA) supports these efforts by offering tax credits and rebates to incentivize energy-efficient and renewable energy improvements.  

Green Certification Programs: Certifications like LEED provide incentives for meeting sustainability standards, promoting green construction. These certifications provide clear guidelines for sustainable building practices.  

Incentives for Builders and Buyers 

Tax Credits: Builders and property owners can benefit from tax credits for investing in energy-efficient systems and materials. For example, the 45L Tax Credit offers up to $5,000 per unit for energy-efficient homes, promoting sustainable housing while lowering energy costs for both owners and tenants.  

Subsidies: Government subsidies are available to support the installation of renewable energy systems and retrofitting of existing buildings. The IRA allocates funds to clean energy production, including support for renewable energy installations. 

Financing: Green construction projects can benefit from financing options, making it easier to invest in sustainable building practices. Various programs are available to assist with energy-efficient purchases and improvements, such as green loans. Green loans are a dedicated type of financing designed for eco-friendly projects, such as solar loans, energy-efficiency loans, and green mortgages. They often require proof that the funds were used for sustainable projects and may offer lower interest rates to encourage sustainable practices.  

These policies and incentives are designed to reduce the cost of adopting sustainable real estate, encouraging wider participation and fostering continued growth in the sector. 
Green Housing  
“Green housing” refers to homes built with energy-efficient resources and environmentally sustainable practices. The goal is to create homes that are not only environmentally responsible but also cost-effective, offering long-term financial benefits to homeowners. 
Key Benefits of Green Housing 

Preserving the Environment: Green housing minimizes carbon footprints, conserves energy, and uses recyclable materials while reducing costs for homeowners. 

Sustainable Upgrades: Upgrades such as solar panels, energy-efficient appliances, and recycled materials make green homes both eco-friendly and more cost-effective for the tenants. In California, sustainability is further prioritized through the state’s solar mandate, which requires all new homes and low-rise multifamily properties to have solar panels installed during construction, ensuring that renewable energy is integrated from the start. 

Green Real Estate and 1031 Exchanges 
Green real estate represents a shift in how properties are designed, renovated, and managed. As eco-friendly materials and energy-efficient technologies like solar panels and wind energy become more widely adopted, green properties are becoming highly desirable investments. 
While tax incentives, such as the 30% federal tax credit for installing solar panels, don’t directly impact 1031 Exchanges, they can play a role in influencing investor decisions. Investors seeking to maximize returns on green properties can benefit from these incentives, as they help offset the costs of installing energy-efficient systems, making the property more financially viable. In some cases, tax credits and rebates can even improve ROI by reducing the upfront costs of making green upgrades and yielding higher rents from tenants. 
For example, consider a residential property worth $270,000 generating $2,250/month in rent. Operating costs, such as maintenance and insurance, amount to 3.08% of the gross rental income. After accounting for these expenses, the property has an expected Net Operating Income (NOI) of 5.25%. Operating costs, such as maintenance and insurance, consume 3.08% of that income. If the investor decides to install solar panels at an estimated cost of $15,000, the total investment increases to $285,000. While rental rates might not immediately increase as a result of the solar installation, the 30% tax credit could offset up to $4,500 of the expense, significantly reducing the effective cost of the upgrade. Studies show that LEED-certified multifamily properties command a 9% rental premium, double that of non-certified properties. In the office sector, LEED-certified office buildings achieve an average rent 31% higher than non-certified buildings. For class A, green-certified office properties, there is an average 7.1% rental premium. Studies conducted across 20 major global office markets found that only 34% of the future demand for low-carbon workspace will be met in the coming years. In other words, for every 9 square feet of demand, only 3 square feet is currently in the pipeline. Over time, the combination of energy savings and increasing demand for sustainable properties could further enhance a property’s profitability. 
Using 1031 Exchanges for Green Investments 
A 1031 Exchange is a powerful tax-deferral strategy that allows real estate investors to reinvest proceeds from the sale of one property into another like-kind property, deferring associated taxes in the process. For investors focused on sustainability, this creates an opportunity to transition into green real estate without the immediate tax burden, while simultaneously benefiting from long-term energy savings and enhanced property value. 
An https://www.accruit.com/blog/1031-exchanges-involving-construction-and-… exchange can also be valuable strategy, allowing investors to use a portion of their reinvestment funds to upgrade the Replacement Property(ies). If properly structured, sustainability improvements such as solar panel installations or water-saving fixtures can be included as part of the Replacement Property value. This means investors can reinvest in green real estate while still deferring taxes, effectively combining the benefits of both tax deferral and sustainable property improvements. Additionally, Exchangers installing solar panels as part of a 1031 Exchange can still take advantage of the 30% tax incentive, as this incentive is separate from the exchange and allows the Exchanger to deduct 30% of the cost from their Adjust Gross Income, regardless of the source of the funds.  
By leveraging a 1031 Exchange for sustainability upgrades, investors not only maximize tax benefits, but enhance the long-term value and efficiency of their properties.  
The future of real estate is going green. Sustainable building practices, government incentives, and growing investor interest are shaping the industry. While tax incentives for environmentally friendly building upgrades don’t directly affect 1031 Exchanges, they make green investments more attractive by reducing upfront costs. Investors seeking strong returns and sustainability should consider green properties, whether through upgrades, improvement exchanges, or utilizing incentives, ensuring both financial growth and positive environmental impact.  
 
The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice.  
 
Sources: 
Green Real Estate: The Key Sustainability Trends for 2025 | GEP Blog 
Sustainability reporting in construction and real estate sector: A conceptualization and a review of existing literature – ScienceDirect 
Why Bother with Certification? LEED-Certified Apartments Earn Higher Rents :: GBIG Insight 
Green Loans and Eco-Friendly Lending | Axelrad Capital 

With buildings responsible for over 1/3 of global CO2 emissions, the shift toward sustainable real estate is growing. Government incentives, stricter regulations, and rising demand make green properties a smart investment. 1031 Exchanges offer investors a tax-efficient way to transition into eco-friendly properties or fund sustainability upgrades, aligning financial growth with green practices. In this blog, we explore key sustainability trends, investment opportunities, and how 1031 Exchanges can support the transition to green real estate. 
The Rise of Sustainable Buildings 
Cities and companies around the world are setting strong carbon neutrality goals, driving innovation in sustainable building practices. The World Green Building Council estimates that green buildings can cut carbon emissions by up to 50% compared to traditional structures, and hundreds of cities globally have committed to achieving carbon neutrality by 2050. Additionally, green building certifications like LEED (Leadership in Energy and Environmental Design) and BREEAM (Building Research Establishment Environmental Assessment Method) are becoming more important to new construction projects, as organizations place greater emphasis on sustainable decisions. 
Investment Potential 
Sustainable properties not only contribute positively to the environment, but also present significant investment opportunities. Opportunities include:

Market Stability: Green buildings tend to be more resilient to market fluctuations, due to their lower operational costs and long-term value, offering a more stable income stream. 

Higher ROI: Sustainable properties often command higher property values and premium rental rates, leading to a higher return on investment. 

Institutional Support: Environmentally conscious investors, including many https://www.accruit.com/blog/passive-real-estate-investments-reits-and-… Estate Investment Trusts (REITs) are increasingly drawn to green real estate, recognizing its potential for long-term growth. 

Government Regulations and Incentives  
In the United States, federal, state, and local governments actively promote sustainable real estate through various policies, regulations, and financial incentives designed to encourage green development. 
Key Policies 

Stricter Building Codes: Regulations now require higher energy efficiency, water conservation, and use of sustainable materials in construction. For example, the International Green Construction Code (IgCC) provides a comprehensive approach to building design, construction, and operation, establishing mandatory green standards for buildings.  

Carbon Emission Regulations and Incentives: Policies are being introduced that penalize high carbon emissions, encouraging businesses and builders to adopt greener practices. The Inflation Reduction Act (IRA) supports these efforts by offering tax credits and rebates to incentivize energy-efficient and renewable energy improvements.  

Green Certification Programs: Certifications like LEED provide incentives for meeting sustainability standards, promoting green construction. These certifications provide clear guidelines for sustainable building practices.  

Incentives for Builders and Buyers 

Tax Credits: Builders and property owners can benefit from tax credits for investing in energy-efficient systems and materials. For example, the 45L Tax Credit offers up to $5,000 per unit for energy-efficient homes, promoting sustainable housing while lowering energy costs for both owners and tenants.  

Subsidies: Government subsidies are available to support the installation of renewable energy systems and retrofitting of existing buildings. The IRA allocates funds to clean energy production, including support for renewable energy installations. 

Financing: Green construction projects can benefit from financing options, making it easier to invest in sustainable building practices. Various programs are available to assist with energy-efficient purchases and improvements, such as green loans. Green loans are a dedicated type of financing designed for eco-friendly projects, such as solar loans, energy-efficiency loans, and green mortgages. They often require proof that the funds were used for sustainable projects and may offer lower interest rates to encourage sustainable practices.  

These policies and incentives are designed to reduce the cost of adopting sustainable real estate, encouraging wider participation and fostering continued growth in the sector. 
Green Housing  
“Green housing” refers to homes built with energy-efficient resources and environmentally sustainable practices. The goal is to create homes that are not only environmentally responsible but also cost-effective, offering long-term financial benefits to homeowners. 
Key Benefits of Green Housing 

Preserving the Environment: Green housing minimizes carbon footprints, conserves energy, and uses recyclable materials while reducing costs for homeowners. 

Sustainable Upgrades: Upgrades such as solar panels, energy-efficient appliances, and recycled materials make green homes both eco-friendly and more cost-effective for the tenants. In California, sustainability is further prioritized through the state’s solar mandate, which requires all new homes and low-rise multifamily properties to have solar panels installed during construction, ensuring that renewable energy is integrated from the start. 

Green Real Estate and 1031 Exchanges 
Green real estate represents a shift in how properties are designed, renovated, and managed. As eco-friendly materials and energy-efficient technologies like solar panels and wind energy become more widely adopted, green properties are becoming highly desirable investments. 
While tax incentives, such as the 30% federal tax credit for installing solar panels, don’t directly impact 1031 Exchanges, they can play a role in influencing investor decisions. Investors seeking to maximize returns on green properties can benefit from these incentives, as they help offset the costs of installing energy-efficient systems, making the property more financially viable. In some cases, tax credits and rebates can even improve ROI by reducing the upfront costs of making green upgrades and yielding higher rents from tenants. 
For example, consider a residential property worth $270,000 generating $2,250/month in rent. Operating costs, such as maintenance and insurance, amount to 3.08% of the gross rental income. After accounting for these expenses, the property has an expected Net Operating Income (NOI) of 5.25%. Operating costs, such as maintenance and insurance, consume 3.08% of that income. If the investor decides to install solar panels at an estimated cost of $15,000, the total investment increases to $285,000. While rental rates might not immediately increase as a result of the solar installation, the 30% tax credit could offset up to $4,500 of the expense, significantly reducing the effective cost of the upgrade. Studies show that LEED-certified multifamily properties command a 9% rental premium, double that of non-certified properties. In the office sector, LEED-certified office buildings achieve an average rent 31% higher than non-certified buildings. For class A, green-certified office properties, there is an average 7.1% rental premium. Studies conducted across 20 major global office markets found that only 34% of the future demand for low-carbon workspace will be met in the coming years. In other words, for every 9 square feet of demand, only 3 square feet is currently in the pipeline. Over time, the combination of energy savings and increasing demand for sustainable properties could further enhance a property’s profitability. 
Using 1031 Exchanges for Green Investments 
A 1031 Exchange is a powerful tax-deferral strategy that allows real estate investors to reinvest proceeds from the sale of one property into another like-kind property, deferring associated taxes in the process. For investors focused on sustainability, this creates an opportunity to transition into green real estate without the immediate tax burden, while simultaneously benefiting from long-term energy savings and enhanced property value. 
An https://www.accruit.com/blog/1031-exchanges-involving-construction-and-… exchange can also be valuable strategy, allowing investors to use a portion of their reinvestment funds to upgrade the Replacement Property(ies). If properly structured, sustainability improvements such as solar panel installations or water-saving fixtures can be included as part of the Replacement Property value. This means investors can reinvest in green real estate while still deferring taxes, effectively combining the benefits of both tax deferral and sustainable property improvements. Additionally, Exchangers installing solar panels as part of a 1031 Exchange can still take advantage of the 30% tax incentive, as this incentive is separate from the exchange and allows the Exchanger to deduct 30% of the cost from their Adjust Gross Income, regardless of the source of the funds.  
By leveraging a 1031 Exchange for sustainability upgrades, investors not only maximize tax benefits, but enhance the long-term value and efficiency of their properties.  
The future of real estate is going green. Sustainable building practices, government incentives, and growing investor interest are shaping the industry. While tax incentives for environmentally friendly building upgrades don’t directly affect 1031 Exchanges, they make green investments more attractive by reducing upfront costs. Investors seeking strong returns and sustainability should consider green properties, whether through upgrades, improvement exchanges, or utilizing incentives, ensuring both financial growth and positive environmental impact.  
 
The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice.  
 
Sources: 
Green Real Estate: The Key Sustainability Trends for 2025 | GEP Blog 
Sustainability reporting in construction and real estate sector: A conceptualization and a review of existing literature – ScienceDirect 
Why Bother with Certification? LEED-Certified Apartments Earn Higher Rents :: GBIG Insight 
Green Loans and Eco-Friendly Lending | Axelrad Capital 

Easements are generally legally binding agreements allowing property owners to grant specific rights for use of the land within the easement to third parties while retaining overall ownership of the land. Beyond their traditional uses, easements can be Relinquished or Replacement Property in 1031 Exchanges, enabling property owners to utilize the proceeds of the easement to reinvest into more productive like-kind property while deferring traditionally associated taxes with real estate transactions. This blog explores the general concept of easements, their various types and uses, and how they can be utilized in the context of 1031 Exchanges to maximize financial benefits and investment opportunities.
What is an Easement? 
An easement is a type of real property interest wherein a landowner grants another party specific rights to use the landowner’s real property for a designated purpose, typically in exchange for compensation. These agreements are often created to address needs such as providing access to land, facilitating the installation of utilities, or preserving the land for conservation purposes. For example, a utility easement allows utility companies to install and maintain infrastructure like electrical, water and gas lines. A conservation easement on the other hand, is created when a landowner restricts development on their land to protect natural or historical features. Easements can be either perpetual, lasting indefinitely, or for a fixed term, based on the easement agreement. As recognized real property interests, easements may be sold as part of 1031 Exchange transactions, allowing property owners to defer associated taxes while reinvesting in like-kind properties. 
Types of Easements 
Easements serve various purposes and can assume different forms depending on the needs of the property owner and the rights granted. Below are examples of easements: 

Access Easements: Access easements grant specific rights to the grantee of an easement to use another landowner’s property for purposes like ingress and egress (access) to the property of the person acquiring the easement. Examples are creation of a common driveway, livestock driveways, access roads to irrigation ditches or canals or temporary access rights for construction, access to equipment, etc.  

Utility Easements: Utility easements allow utility companies to install and maintain infrastructure such as power lines, water pipes, or telecommunication cables on private property. These easements are typically restricted to specific areas of the property and do not transfer ownership.  These easements may involve a small easement area to provide utilities to one parcel or huge multi-state utility transmission lines. 

Conservation Easements: Conservation easements are agreements designed to protect land for environmental, recreational, or historical purposes by restricting development or changes that could harm the land’s natural or cultural value. These easements are often used to preserve open spaces, natural habitat, protect endangered or threatened species, create greenbelts, or preserve historic structures. Unlike the other types of easements described herein, the grantor of a typical conservation easement is agreeing to restrict the use of their land. Typically, those purchasing conservation easements are government agencies or conservation organizations.  

Ditch, Canal and Water Line Easements: These easements are created when a landowner grants a third party, sometimes a government entity, the right to construct, maintain and repair ditches, canals or waterlines across a landowner’s property to transport water for irrigation, domestic or municipal uses. These easements may also allow the easement owner to access water diversion structures. These easements may involve just one relatively small property parcel but can involve multiple landowners and large water conveyance systems  

Gas and Oil Pipeline Easements: These easements typically involve large projects allowing for underground or above ground transport of oil and natural gas across multiple states and multiple landowners.   

https://www.accruit.com/blog/cell-tower-billboard-1031-exchanges”>Cell Tower, Billboard, Wind and Solar Easements: These easements are created when landowners grant rights to others to build and maintain structures like cell towers, billboards, windmills and huge solar panel installations on a landowner’s property. These easements can be granted by private landowners or in some instances by governmental agencies. In some cases, these easements may include long-term lease agreements to the easement holder for the pads or area utilized by the structure, creating an additional revenue stream for the landowner. 

Terms of Easements 
Easements can be structured with different durations, depending on the needs of the parties involved. The terms of an easement can significantly influence property management, income potential, and long-term planning. Easements are typically written agreements, there is an entire area of the law that deals with prescriptive easements, easements by necessity and the like. For purposes of this article, we will only address written, legally binding easement agreements.   

Perpetual Easement: A perpetual easement has no fixed end date and lasts indefinitely. These types of easements are often preferred because of their simplicity and long-term stability. They offer property owners a reliable and consistent income stream, making them especially beneficial in cases where ongoing access or preservation is required, such as with utility or conservation easements. In the 1031 Exchange context, perpetual easements are “like kind” to fee ownership of real estate and the proceeds from the sale of perpetual easements can be used to acquire any other real property interests meeting the like kind standard.  

Fixed or Short-Term Easements: Easements that are less than perpetual can be of any length. Some easements may be temporary and very short term in the case of construction easements. Other easements can be of any stated term. The important feature of these less-than perpetual easements in the 1031 Exchange context is that they are not like kind to other fee interests in real property. However, a 1031 Exchange is still possible, as long as the proceeds from the sale of a fixed or short-term easement are used to exchange into another fixed or short-term easement

Ways Property Owners can Achieve Tax Benefits with Easements 
Donating an Easement
Donating a conservation easement allows property owners to restrict land use for preservation or conservation without transferring full ownership, offering significant tax benefits. These qualified conservation contributions, often used to protect open spaces, natural habitats, or historic structures, are donated to charitable organizations or government entities. The key to these transactions is that the property owner does not receive any monetary consideration for the easements, choosing instead to avail themselves of the charitable contribution tax deductions. The Exchanger should consult with their CPA or other advisors to determine the various deduction benefits available to them based upon the type of easement being granted. 
In 2006, President Bush signed https://www.congress.gov/109/plaws/publ280/PLAW-109publ280.pdf”>The Pension Protection Act, the first substantial change to the conservation easement tax system in over two decades. Before the Act, Section 170(b) of the Internal Revenue Code imposed stricter limits on the deductibility of a qualified conservation easement. Individuals could typically deduct the value of a conservation easement donation up to 30% of their Adjusted Gross Income (AGI) for the year (50% for qualified farmers and ranchers), with any unused deductions eligible to be carried forward for an additional five years. The Pension Protection Act increased the tax incentives for easement donations, as it allowed individuals who donate an easement to deduct up to 50% of their AGI in a given tax year (100% for qualified farmers and ranchers), with any unused contributions eligible to be carried forward for up to 15 years. Donations of appreciated property remain the same, limited to 30% of income with a 5-year carryover.
Nine years later, the https://www.congress.gov/bill/114th-congress/senate-bill/330/text”>Cons… Easement Incentive Act of 2015 was enacted, permanently amending the Internal Revenue Code to solidify the tax incentives introduced in the Pension Protection Act for charitable contributions of real property interests aimed at conservation purposes.
Conservation Easements as Relinquished Property in a 1031 Exchange 
The conveyance, or sale, of a https://www.accruit.com/blog/video-considerations-easements-relinquishe… easement may be treated as a Relinquished Property in a 1031 Exchange, allowing Exchangers to defer associated taxes by acquiring like-kind Replacement Property. To qualify under IRC Section 1031, an easement must represent a perpetual interest in the land and most conservation easements are structured in that fashion. Since payments for easements are typically made upfront, utilizing an easement sale as a relinquished real property interest aligns well with the 1031 Exchange process. Temporary easements do not meet the requirements set forth in the Section 1031 regulations 
To execute a 1031 Exchange, the transaction must follow specific requirements. A Qualified Intermediary (QI), such as Accruit, must enter into an exchange agreement with the Taxpayer/Seller and manage the sale proceeds and acquisition of qualifying Replacement Property(ies) to ensure compliance with the tax code. Additionally, the transaction must be structured as an exchange rather than a straightforward sale. Improper structuring of the sale of a conservation easement can lead to unintended tax consequences. 
Evolution of Conservation Easements for Tax Benefits 
Conservation easement donations have been tax-deductible since 1976, when Congress established this incentive. Initially, the tax benefits were limited to deductions for conservation purposes, allowing landowners to donate easements to protect natural resources and claim charitable tax deductions. However, the initial activity in conservation easements was relatively slow because Taxpayers in the agriculture sector who were the natural source of conservation easements didn’t need or want charitable contributions due to harsh economic conditions; many of them were operating at a loss. The incentives for conservation easements changed dramatically when government agencies and conservation groups began offering substantial sums of money to property owners for conservation easements. Landowners now leverage easements not just for land preservation, but for reinvestment in more productive properties or other investment opportunities. 
Donating an easement, while still an option, may no longer make as much sense for many property owners as it may have in the past. Charitable contributions of easements can yield tax deductions, but these benefits are typically capped by IRS limits on charitable contributions. However, some landowners are still motivated by a conservation ethic and not the money and the charitable contribution is sufficient incentive. In contrast, selling a conservation easement and redeploying the cash proceeds in an exchange can result in significantly greater financial diversification coupled with tax deferral. By choosing to sell rather than donate, property owners can better optimize the value of their real estate while still contributing to broader land-use or conservation goals. 
Easements are more than just legal agreements. They are tools enabling property owners to optimize land use and reinvest proceeds from easement sales into other like-kind property. Whether preserving natural resources through conservation easements, enabling infrastructure development with utility and other energy related easements, or enhancing highway and road systems, easement sales offer significant flexibility and benefits to property owners, third parties involved, and the general public. By leveraging easements effectively, property owners can strike a balance between private rights and public interests while maximizing the value of their real estate assets. 
The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice. 

Easements are generally legally binding agreements allowing property owners to grant specific rights for use of the land within the easement to third parties while retaining overall ownership of the land. Beyond their traditional uses, easements can be Relinquished or Replacement Property in 1031 Exchanges, enabling property owners to utilize the proceeds of the easement to reinvest into more productive like-kind property while deferring traditionally associated taxes with real estate transactions. This blog explores the general concept of easements, their various types and uses, and how they can be utilized in the context of 1031 Exchanges to maximize financial benefits and investment opportunities.
What is an Easement? 
An easement is a type of real property interest wherein a landowner grants another party specific rights to use the landowner’s real property for a designated purpose, typically in exchange for compensation. These agreements are often created to address needs such as providing access to land, facilitating the installation of utilities, or preserving the land for conservation purposes. For example, a utility easement allows utility companies to install and maintain infrastructure like electrical, water and gas lines. A conservation easement on the other hand, is created when a landowner restricts development on their land to protect natural or historical features. Easements can be either perpetual, lasting indefinitely, or for a fixed term, based on the easement agreement. As recognized real property interests, easements may be sold as part of 1031 Exchange transactions, allowing property owners to defer associated taxes while reinvesting in like-kind properties. 
Types of Easements 
Easements serve various purposes and can assume different forms depending on the needs of the property owner and the rights granted. Below are examples of easements: 

Access Easements: Access easements grant specific rights to the grantee of an easement to use another landowner’s property for purposes like ingress and egress (access) to the property of the person acquiring the easement. Examples are creation of a common driveway, livestock driveways, access roads to irrigation ditches or canals or temporary access rights for construction, access to equipment, etc.  

Utility Easements: Utility easements allow utility companies to install and maintain infrastructure such as power lines, water pipes, or telecommunication cables on private property. These easements are typically restricted to specific areas of the property and do not transfer ownership.  These easements may involve a small easement area to provide utilities to one parcel or huge multi-state utility transmission lines. 

Conservation Easements: Conservation easements are agreements designed to protect land for environmental, recreational, or historical purposes by restricting development or changes that could harm the land’s natural or cultural value. These easements are often used to preserve open spaces, natural habitat, protect endangered or threatened species, create greenbelts, or preserve historic structures. Unlike the other types of easements described herein, the grantor of a typical conservation easement is agreeing to restrict the use of their land. Typically, those purchasing conservation easements are government agencies or conservation organizations.  

Ditch, Canal and Water Line Easements: These easements are created when a landowner grants a third party, sometimes a government entity, the right to construct, maintain and repair ditches, canals or waterlines across a landowner’s property to transport water for irrigation, domestic or municipal uses. These easements may also allow the easement owner to access water diversion structures. These easements may involve just one relatively small property parcel but can involve multiple landowners and large water conveyance systems  

Gas and Oil Pipeline Easements: These easements typically involve large projects allowing for underground or above ground transport of oil and natural gas across multiple states and multiple landowners.   

https://www.accruit.com/blog/cell-tower-billboard-1031-exchanges”>Cell Tower, Billboard, Wind and Solar Easements: These easements are created when landowners grant rights to others to build and maintain structures like cell towers, billboards, windmills and huge solar panel installations on a landowner’s property. These easements can be granted by private landowners or in some instances by governmental agencies. In some cases, these easements may include long-term lease agreements to the easement holder for the pads or area utilized by the structure, creating an additional revenue stream for the landowner. 

Terms of Easements 
Easements can be structured with different durations, depending on the needs of the parties involved. The terms of an easement can significantly influence property management, income potential, and long-term planning. Easements are typically written agreements, there is an entire area of the law that deals with prescriptive easements, easements by necessity and the like. For purposes of this article, we will only address written, legally binding easement agreements.   

Perpetual Easement: A perpetual easement has no fixed end date and lasts indefinitely. These types of easements are often preferred because of their simplicity and long-term stability. They offer property owners a reliable and consistent income stream, making them especially beneficial in cases where ongoing access or preservation is required, such as with utility or conservation easements. In the 1031 Exchange context, perpetual easements are “like kind” to fee ownership of real estate and the proceeds from the sale of perpetual easements can be used to acquire any other real property interests meeting the like kind standard.  

Fixed or Short-Term Easements: Easements that are less than perpetual can be of any length. Some easements may be temporary and very short term in the case of construction easements. Other easements can be of any stated term. The important feature of these less-than perpetual easements in the 1031 Exchange context is that they are not like kind to other fee interests in real property. However, a 1031 Exchange is still possible, as long as the proceeds from the sale of a fixed or short-term easement are used to exchange into another fixed or short-term easement

Ways Property Owners can Achieve Tax Benefits with Easements 
Donating an Easement
Donating a conservation easement allows property owners to restrict land use for preservation or conservation without transferring full ownership, offering significant tax benefits. These qualified conservation contributions, often used to protect open spaces, natural habitats, or historic structures, are donated to charitable organizations or government entities. The key to these transactions is that the property owner does not receive any monetary consideration for the easements, choosing instead to avail themselves of the charitable contribution tax deductions. The Exchanger should consult with their CPA or other advisors to determine the various deduction benefits available to them based upon the type of easement being granted. 
In 2006, President Bush signed https://www.congress.gov/109/plaws/publ280/PLAW-109publ280.pdf”>The Pension Protection Act, the first substantial change to the conservation easement tax system in over two decades. Before the Act, Section 170(b) of the Internal Revenue Code imposed stricter limits on the deductibility of a qualified conservation easement. Individuals could typically deduct the value of a conservation easement donation up to 30% of their Adjusted Gross Income (AGI) for the year (50% for qualified farmers and ranchers), with any unused deductions eligible to be carried forward for an additional five years. The Pension Protection Act increased the tax incentives for easement donations, as it allowed individuals who donate an easement to deduct up to 50% of their AGI in a given tax year (100% for qualified farmers and ranchers), with any unused contributions eligible to be carried forward for up to 15 years. Donations of appreciated property remain the same, limited to 30% of income with a 5-year carryover.
Nine years later, the https://www.congress.gov/bill/114th-congress/senate-bill/330/text”>Cons… Easement Incentive Act of 2015 was enacted, permanently amending the Internal Revenue Code to solidify the tax incentives introduced in the Pension Protection Act for charitable contributions of real property interests aimed at conservation purposes.
Conservation Easements as Relinquished Property in a 1031 Exchange 
The conveyance, or sale, of a https://www.accruit.com/blog/video-considerations-easements-relinquishe… easement may be treated as a Relinquished Property in a 1031 Exchange, allowing Exchangers to defer associated taxes by acquiring like-kind Replacement Property. To qualify under IRC Section 1031, an easement must represent a perpetual interest in the land and most conservation easements are structured in that fashion. Since payments for easements are typically made upfront, utilizing an easement sale as a relinquished real property interest aligns well with the 1031 Exchange process. Temporary easements do not meet the requirements set forth in the Section 1031 regulations 
To execute a 1031 Exchange, the transaction must follow specific requirements. A Qualified Intermediary (QI), such as Accruit, must enter into an exchange agreement with the Taxpayer/Seller and manage the sale proceeds and acquisition of qualifying Replacement Property(ies) to ensure compliance with the tax code. Additionally, the transaction must be structured as an exchange rather than a straightforward sale. Improper structuring of the sale of a conservation easement can lead to unintended tax consequences. 
Evolution of Conservation Easements for Tax Benefits 
Conservation easement donations have been tax-deductible since 1976, when Congress established this incentive. Initially, the tax benefits were limited to deductions for conservation purposes, allowing landowners to donate easements to protect natural resources and claim charitable tax deductions. However, the initial activity in conservation easements was relatively slow because Taxpayers in the agriculture sector who were the natural source of conservation easements didn’t need or want charitable contributions due to harsh economic conditions; many of them were operating at a loss. The incentives for conservation easements changed dramatically when government agencies and conservation groups began offering substantial sums of money to property owners for conservation easements. Landowners now leverage easements not just for land preservation, but for reinvestment in more productive properties or other investment opportunities. 
Donating an easement, while still an option, may no longer make as much sense for many property owners as it may have in the past. Charitable contributions of easements can yield tax deductions, but these benefits are typically capped by IRS limits on charitable contributions. However, some landowners are still motivated by a conservation ethic and not the money and the charitable contribution is sufficient incentive. In contrast, selling a conservation easement and redeploying the cash proceeds in an exchange can result in significantly greater financial diversification coupled with tax deferral. By choosing to sell rather than donate, property owners can better optimize the value of their real estate while still contributing to broader land-use or conservation goals. 
Easements are more than just legal agreements. They are tools enabling property owners to optimize land use and reinvest proceeds from easement sales into other like-kind property. Whether preserving natural resources through conservation easements, enabling infrastructure development with utility and other energy related easements, or enhancing highway and road systems, easement sales offer significant flexibility and benefits to property owners, third parties involved, and the general public. By leveraging easements effectively, property owners can strike a balance between private rights and public interests while maximizing the value of their real estate assets. 
The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice. 

Easements are generally legally binding agreements allowing property owners to grant specific rights for use of the land within the easement to third parties while retaining overall ownership of the land. Beyond their traditional uses, easements can be Relinquished or Replacement Property in 1031 Exchanges, enabling property owners to utilize the proceeds of the easement to reinvest into more productive like-kind property while deferring traditionally associated taxes with real estate transactions. This blog explores the general concept of easements, their various types and uses, and how they can be utilized in the context of 1031 Exchanges to maximize financial benefits and investment opportunities.
What is an Easement? 
An easement is a type of real property interest wherein a landowner grants another party specific rights to use the landowner’s real property for a designated purpose, typically in exchange for compensation. These agreements are often created to address needs such as providing access to land, facilitating the installation of utilities, or preserving the land for conservation purposes. For example, a utility easement allows utility companies to install and maintain infrastructure like electrical, water and gas lines. A conservation easement on the other hand, is created when a landowner restricts development on their land to protect natural or historical features. Easements can be either perpetual, lasting indefinitely, or for a fixed term, based on the easement agreement. As recognized real property interests, easements may be sold as part of 1031 Exchange transactions, allowing property owners to defer associated taxes while reinvesting in like-kind properties. 
Types of Easements 
Easements serve various purposes and can assume different forms depending on the needs of the property owner and the rights granted. Below are examples of easements: 

Access Easements: Access easements grant specific rights to the grantee of an easement to use another landowner’s property for purposes like ingress and egress (access) to the property of the person acquiring the easement. Examples are creation of a common driveway, livestock driveways, access roads to irrigation ditches or canals or temporary access rights for construction, access to equipment, etc.  

Utility Easements: Utility easements allow utility companies to install and maintain infrastructure such as power lines, water pipes, or telecommunication cables on private property. These easements are typically restricted to specific areas of the property and do not transfer ownership.  These easements may involve a small easement area to provide utilities to one parcel or huge multi-state utility transmission lines. 

Conservation Easements: Conservation easements are agreements designed to protect land for environmental, recreational, or historical purposes by restricting development or changes that could harm the land’s natural or cultural value. These easements are often used to preserve open spaces, natural habitat, protect endangered or threatened species, create greenbelts, or preserve historic structures. Unlike the other types of easements described herein, the grantor of a typical conservation easement is agreeing to restrict the use of their land. Typically, those purchasing conservation easements are government agencies or conservation organizations.  

Ditch, Canal and Water Line Easements: These easements are created when a landowner grants a third party, sometimes a government entity, the right to construct, maintain and repair ditches, canals or waterlines across a landowner’s property to transport water for irrigation, domestic or municipal uses. These easements may also allow the easement owner to access water diversion structures. These easements may involve just one relatively small property parcel but can involve multiple landowners and large water conveyance systems  

Gas and Oil Pipeline Easements: These easements typically involve large projects allowing for underground or above ground transport of oil and natural gas across multiple states and multiple landowners.   

https://www.accruit.com/blog/cell-tower-billboard-1031-exchanges”>Cell Tower, Billboard, Wind and Solar Easements: These easements are created when landowners grant rights to others to build and maintain structures like cell towers, billboards, windmills and huge solar panel installations on a landowner’s property. These easements can be granted by private landowners or in some instances by governmental agencies. In some cases, these easements may include long-term lease agreements to the easement holder for the pads or area utilized by the structure, creating an additional revenue stream for the landowner. 

Terms of Easements 
Easements can be structured with different durations, depending on the needs of the parties involved. The terms of an easement can significantly influence property management, income potential, and long-term planning. Easements are typically written agreements, there is an entire area of the law that deals with prescriptive easements, easements by necessity and the like. For purposes of this article, we will only address written, legally binding easement agreements.   

Perpetual Easement: A perpetual easement has no fixed end date and lasts indefinitely. These types of easements are often preferred because of their simplicity and long-term stability. They offer property owners a reliable and consistent income stream, making them especially beneficial in cases where ongoing access or preservation is required, such as with utility or conservation easements. In the 1031 Exchange context, perpetual easements are “like kind” to fee ownership of real estate and the proceeds from the sale of perpetual easements can be used to acquire any other real property interests meeting the like kind standard.  

Fixed or Short-Term Easements: Easements that are less than perpetual can be of any length. Some easements may be temporary and very short term in the case of construction easements. Other easements can be of any stated term. The important feature of these less-than perpetual easements in the 1031 Exchange context is that they are not like kind to other fee interests in real property. However, a 1031 Exchange is still possible, as long as the proceeds from the sale of a fixed or short-term easement are used to exchange into another fixed or short-term easement

Ways Property Owners can Achieve Tax Benefits with Easements 
Donating an Easement
Donating a conservation easement allows property owners to restrict land use for preservation or conservation without transferring full ownership, offering significant tax benefits. These qualified conservation contributions, often used to protect open spaces, natural habitats, or historic structures, are donated to charitable organizations or government entities. The key to these transactions is that the property owner does not receive any monetary consideration for the easements, choosing instead to avail themselves of the charitable contribution tax deductions. The Exchanger should consult with their CPA or other advisors to determine the various deduction benefits available to them based upon the type of easement being granted. 
In 2006, President Bush signed https://www.congress.gov/109/plaws/publ280/PLAW-109publ280.pdf”>The Pension Protection Act, the first substantial change to the conservation easement tax system in over two decades. Before the Act, Section 170(b) of the Internal Revenue Code imposed stricter limits on the deductibility of a qualified conservation easement. Individuals could typically deduct the value of a conservation easement donation up to 30% of their Adjusted Gross Income (AGI) for the year (50% for qualified farmers and ranchers), with any unused deductions eligible to be carried forward for an additional five years. The Pension Protection Act increased the tax incentives for easement donations, as it allowed individuals who donate an easement to deduct up to 50% of their AGI in a given tax year (100% for qualified farmers and ranchers), with any unused contributions eligible to be carried forward for up to 15 years. Donations of appreciated property remain the same, limited to 30% of income with a 5-year carryover.
Nine years later, the https://www.congress.gov/bill/114th-congress/senate-bill/330/text”>Cons… Easement Incentive Act of 2015 was enacted, permanently amending the Internal Revenue Code to solidify the tax incentives introduced in the Pension Protection Act for charitable contributions of real property interests aimed at conservation purposes.
Conservation Easements as Relinquished Property in a 1031 Exchange 
The conveyance, or sale, of a https://www.accruit.com/blog/video-considerations-easements-relinquishe… easement may be treated as a Relinquished Property in a 1031 Exchange, allowing Exchangers to defer associated taxes by acquiring like-kind Replacement Property. To qualify under IRC Section 1031, an easement must represent a perpetual interest in the land and most conservation easements are structured in that fashion. Since payments for easements are typically made upfront, utilizing an easement sale as a relinquished real property interest aligns well with the 1031 Exchange process. Temporary easements do not meet the requirements set forth in the Section 1031 regulations 
To execute a 1031 Exchange, the transaction must follow specific requirements. A Qualified Intermediary (QI), such as Accruit, must enter into an exchange agreement with the Taxpayer/Seller and manage the sale proceeds and acquisition of qualifying Replacement Property(ies) to ensure compliance with the tax code. Additionally, the transaction must be structured as an exchange rather than a straightforward sale. Improper structuring of the sale of a conservation easement can lead to unintended tax consequences. 
Evolution of Conservation Easements for Tax Benefits 
Conservation easement donations have been tax-deductible since 1976, when Congress established this incentive. Initially, the tax benefits were limited to deductions for conservation purposes, allowing landowners to donate easements to protect natural resources and claim charitable tax deductions. However, the initial activity in conservation easements was relatively slow because Taxpayers in the agriculture sector who were the natural source of conservation easements didn’t need or want charitable contributions due to harsh economic conditions; many of them were operating at a loss. The incentives for conservation easements changed dramatically when government agencies and conservation groups began offering substantial sums of money to property owners for conservation easements. Landowners now leverage easements not just for land preservation, but for reinvestment in more productive properties or other investment opportunities. 
Donating an easement, while still an option, may no longer make as much sense for many property owners as it may have in the past. Charitable contributions of easements can yield tax deductions, but these benefits are typically capped by IRS limits on charitable contributions. However, some landowners are still motivated by a conservation ethic and not the money and the charitable contribution is sufficient incentive. In contrast, selling a conservation easement and redeploying the cash proceeds in an exchange can result in significantly greater financial diversification coupled with tax deferral. By choosing to sell rather than donate, property owners can better optimize the value of their real estate while still contributing to broader land-use or conservation goals. 
Easements are more than just legal agreements. They are tools enabling property owners to optimize land use and reinvest proceeds from easement sales into other like-kind property. Whether preserving natural resources through conservation easements, enabling infrastructure development with utility and other energy related easements, or enhancing highway and road systems, easement sales offer significant flexibility and benefits to property owners, third parties involved, and the general public. By leveraging easements effectively, property owners can strike a balance between private rights and public interests while maximizing the value of their real estate assets. 
The material in this blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Accruit performs the duties of a Qualified Intermediary, and as such does not offer or sell investments or provide investment, legal, or tax advice.