A purchase of development rights, or PDR, is a voluntary transaction in which a landowner accepts a cash payment in exchange for permanently giving up the right to subdivide the property or develop it for non-agricultural use. You keep full ownership. You keep farming, ranching, grazing, or managing timber. What you surrender, forever, is the option to sell the land to a housing developer or convert it to commercial use. The restriction is recorded as a conservation easement on the deed, and it binds every future owner of the property.
The buyer is usually a state or local agricultural preservation program, sometimes working with a nonprofit land trust. The federal government commonly funds up to half the purchase price through the Agricultural Conservation Easement Program (ACEP), administered by the Natural Resources Conservation Service.1Office of the Law Revision Counsel. 16 USC 3865b – Agricultural Land Easements For grasslands NRCS considers to have special environmental significance, the federal share can reach 75 percent.2NRCS. Agricultural Conservation Easement Program
How the Payment Is Calculated
Your payment equals the difference between two appraised values. A professional appraiser first determines what the property is worth at its “highest and best use,” which typically assumes full residential or commercial development. Then they value the same land restricted permanently to agricultural or conservation use. The gap between those two figures is the value of the development rights the program is buying.
Federal law requires the fair market value be determined using the Uniform Standards of Professional Appraisal Practice, an areawide market analysis, or another industry-approved method.1Office of the Law Revision Counsel. 16 USC 3865b – Agricultural Land Easements Appraisers compare recent sales of subdivided parcels against sales of comparable farmland to establish both price points. The per-acre gap can run from a few thousand dollars in remote rural counties to $20,000 or more near suburban growth corridors, where the pressure to develop drives up the “before” value considerably.
The appraisal, survey, and title work are typically covered out of the purchasing entity’s project budget rather than by you. Under ACEP, those transaction costs can count toward the non-federal match share.1Office of the Law Revision Counsel. 16 USC 3865b – Agricultural Land Easements
Payment can be a lump sum or an installment purchase agreement that spreads the money across multiple tax years. The choice affects your tax bill significantly, so it is worth talking to a tax professional before you agree to the payment structure.
Who Qualifies
Each PDR program sets its own criteria, but the common thresholds look similar across the country.
Minimum parcel sizes usually run from 20 to 50 contiguous acres. Programs prioritize land the USDA classifies as “prime farmland,” meaning it has the best combination of soil properties, growing season, and water supply to sustain high yields.3USDA NRCS. NSSH Part 622 – Prime Farmland Definition Land classified as “unique farmland” also qualifies in many programs because it supports specific high-value crops that cannot be grown as successfully elsewhere. The property generally must sit inside a designated agricultural preservation district or a conservation priority area identified by local planners.
Clear title is essential. You must show full legal ownership with no unresolved liens. If a mortgage is on the property, your lender has to sign a subordination agreement letting the conservation easement take priority over the mortgage in the chain of title. Without that agreement, a foreclosure could wipe out the easement, defeating the whole point of the program.
Federal ACEP funding also imposes an income ceiling. Landowners whose three-year average adjusted gross income exceeds $900,000 are generally ineligible, though an exception applies when at least 75 percent of that income comes from farming, ranching, or forestry.2NRCS. Agricultural Conservation Easement Program
What You Can and Cannot Do After the Easement Is Recorded
Selling development rights does not turn your farm into a nature preserve you can’t touch. You can still farm, graze livestock, harvest timber, and construct buildings that directly support the agricultural operation. The limits are on non-agricultural development and land conversion.
Under ACEP’s federal regulations, impervious surfaces (roofs, concrete pads, paved areas) cannot exceed 2 percent of the total easement area.4eCFR. 7 CFR 1468.25 – Agricultural Land Easement Deeds NRCS can waive that cap up to 10 percent case by case after weighing the type of farming, parcel size, and water quality concerns. Blanket waivers are not allowed.
The other core restrictions:
- Splitting the property into smaller parcels is prohibited unless state or local law requires it for employee housing or NRCS specifically authorizes it.4eCFR. 7 CFR 1468.25 – Agricultural Land Easement Deeds
- Commercial and industrial activity is prohibited unless NRCS finds it consistent with agricultural use of the land. A farm stand selling produce grown on site would likely qualify. A warehouse unrelated to the farm would not.
- Subsurface mining and drilling are prohibited unless the deed spells out specific NRCS-approved terms for extraction that will not harm the agricultural and conservation values of the property.
These restrictions run with the land. A buyer who purchases easement-encumbered farmland inherits every one of them. Your specific deed may go further than the federal minimums depending on the state or local program involved, so read it carefully before signing.
What Selling Does to Your Taxes
Income Tax on the Cash
The payment is not tax-free. If it exceeds your adjusted tax basis in the property, the excess is a capital gain. Property you have held longer than a year qualifies for long-term capital gains rates rather than ordinary income rates. If the payment is less than or equal to your basis, there may be no taxable gain, but the basis of your remaining interest in the property drops by the amount you received. An installment purchase agreement lets you spread that gain recognition across multiple tax years, softening the blow of a large single-year payment.
The Bargain Sale Deduction
Many landowners agree to sell for less than full appraised value. The difference between the appraised value and the actual payment is treated as a charitable donation. This “bargain sale” arrangement is common in PDR deals because it lets the purchasing entity meet its non-federal match requirement while giving you a federal income tax deduction.
The deduction for a qualified conservation contribution is limited to 50 percent of your adjusted gross income in the year of the donation, with unused amounts carrying forward up to 15 additional years. Qualified farmers and ranchers, meaning those earning more than 50 percent of gross income from farming, can deduct up to 100 percent of AGI under the same 15-year carryforward window.5Office of the Law Revision Counsel. 26 USC 170 – Charitable, Etc., Contributions and Gifts Any value not used by the end of the carryforward period is lost permanently.
To claim any deduction over $5,000, you must obtain a qualified appraisal performed no earlier than 60 days before the donation date, and you must file IRS Form 8283 with your return.6Internal Revenue Service. Instructions for Form 8283 (12/2025) The easement holder must sign the form after reviewing the appraisal, survey, and baseline documentation. Missing the form or the qualified appraisal generally disallows the deduction entirely.
One warning. The IRS has aggressively targeted syndicated conservation easement transactions, where promoters sell partnership interests to investors who then claim inflated deductions. Under the SECURE 2.0 Act, if the claimed contribution exceeds 2.5 times the sum of each partner’s or S corporation shareholder’s relevant basis, the entire deduction is disallowed.6Internal Revenue Service. Instructions for Form 8283 (12/2025) Narrow exceptions exist for family partnerships, contributions made outside a three-year holding period, and certified historic structures. Treat any promoter pitching easement “investment opportunities” with heavy skepticism.
Property Taxes
Recording an easement usually lowers your assessed value for local property tax purposes because it strips away development potential. More than half the states with conservation easement laws require assessors to account for the restrictions when setting values. Reported reductions have ranged from modest to cuts exceeding 90 percent, depending on how much of the property’s assessed value was tied up in development potential. The reassessment does not always happen automatically. Some jurisdictions require you to petition the assessor or appeal the existing assessment.
The Perpetuity Requirement
The word “permanent” in a PDR deal is not marketing language. A qualifying conservation easement under federal tax law must be granted in perpetuity, and the conservation purpose must be protected in perpetuity.7Internal Revenue Service. Introduction to Conservation Easements Every ACEP-funded deed must give NRCS backup enforcement authority if the primary easement holder fails to act, and any post-recording change to the easement terms requires NRCS approval.4eCFR. 7 CFR 1468.25 – Agricultural Land Easement Deeds Where state law prohibits truly permanent easements, the deed defaults to the longest term the state allows.
Termination is designed to be prohibitively expensive. If any party manages to terminate all or part of an easement, the terminating party must reimburse the Commodity Credit Corporation in an amount determined by NRCS.8eCFR. 7 CFR 1468.28 – Violations and Remedies Given original purchase prices that often run into hundreds of thousands of dollars, that backstop makes unwinding an easement financially unrealistic in most situations.
Enforcement is real too. The easement holder is expected to inspect the property at least once a year. If a violation shows up, they must notify both you and NRCS, and you get reasonable notice to fix it voluntarily.8eCFR. 7 CFR 1468.28 – Violations and Remedies If the holder fails to enforce, NRCS can step in directly, and you are liable for costs the agency incurs responding to a violation, including attorney fees.
For landowners, permanence is the hardest part of the deal to accept. Once the deed is recorded, neither you nor your heirs can undo it to capture future development value. The financial calculation has to make sense today, because there is no second chance.
How to Apply and What to Expect
Applications go to your local agricultural preservation board or state agency. You will need a certified property survey showing current boundaries, existing structures, and recorded rights-of-way; a title report going back several decades to establish ownership and reveal any encumbrances, mineral rights, or existing easements; current property tax statements and parcel identification numbers from the assessor; and a detailed description of current land use, including crop types, livestock totals, and any conservation practices already in place. Maps from NRCS help the evaluation committee verify soil classifications and slope percentages. Some programs also want business licenses or proof of farm income.
A selection committee ranks your application against competing properties using a point-based scoring system. Many programs use a framework called Land Evaluation and Site Assessment, which awards points for soil quality, proximity to other preserved farms, the intensity of nearby development pressure, and environmental features like wetlands or stream corridors. High-scoring properties receive a formal offer.
You can accept the appraised price or negotiate. Once you agree, a Deed of Conservation Easement is drafted, signed, and recorded at the county recorder’s office, and payment is disbursed. The full process from application to closing commonly runs 12 to 24 months, and sometimes longer if title issues surface or funding cycles create delays. This is not a fast transaction, and it should not be rushed on your end either.