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Land Protection
If you value the natural beauty of your land and would like to protect it from development, there are several conservation options available to you which may provide significant tax benefits and savings while at the same time generating income from the transfer. Briefly discussed below are a few of the most common conservation methods including:
1. Donation of Land or Conservation Restriction
2. Bargain Sale of Land or Conservation Restriction
3. Full-value Sale of Land or Conservation Restriction
4. Options to Purchase
5. Partial Development/Partial Conservation
Please contact our office to learn more about
these and other options available. As always, please consult your tax advisor
about the option best suited for your particular needs.
Donation of Land or Conservation Restriction (more
detail about CRs below)
Giving land or a conservation restriction to a non-profit land trust like
BTA/BOLT or to a government agency is the simplest way to permanently protect
land. A gift insures permanent protection of the land and the donor may receive
tax benefits based on the appraised value of the gift in the form of federal
income tax deductions, potential federal and state estate tax savings, and
relief from property taxes.
A gift of land made through a will entitles the donor to retain full use of the land during his or her lifetime and assures that it will be cared for in the future. It is advisable to discuss the gift with the agency or organization prior to inclusion in a will, to insure a plan for the care of the land. The donor is responsible for real estate taxes for the property during his or her lifetime. But removing the land from the donor's estate will reduce federal and state taxes. A donation with a reserved life estate may be made to a government agency or land trust. The donor retains the use of the land during his or her lifetime, or the lifetimes of specified family members.
A reserved life estate insures that the land is protected in perpetuity, yet allows the donor to reside there and maintain the land. The tax advantages of a retained life estate may be less than those with an outright gift because the value of the land is appraised at the time of transfer which is encumbered by a life estate.
Bargain
Sale of Land or Conservation Restriction
A bargain sale is part donation and part sale to a land trust or government
agency. The donation part provides tax deduction benefits and the sale part
generates income for the landowner. Here's how it works: land is sold for
conservation at a price that is roughly 25% less than the appraised fair market
value enabling conservation partners to purchase it (a greater the reduction
in price equals greater tax savings). The landowner recaptures this 25% and
possibly more in the form of state and federal capital gain tax exclusions,
federal income tax deductions which can be spread over several years, and
the elimination of broker's and other fees that would have to be paid in a
market sale. Although the tax benefits and terms of a charitable sale vary
depending on each person's financial situation, it offers a sound business
alternative to all landowners, especially those in high income brackets with
land that has significantly appreciated in value over the years.
Full-value
Sale of Land or Conservation Restriction
A full-value sale is the cost of the land at its current fair market value.
If the land is sold at full value and has appreciated since its purchase,
the seller will likely be responsible for income tax on the gain which can
significantly undercut or eliminate net "take-home" profit after the transaction.
If the land has appreciated in value, a bargain sale may be the best solution
to reduce tax liability and increase net proceeds. Since most conservation
organizations need to fundraise for a full-value sale, an installment sale
arrangement allows an agency or organization to purchase property over a period
of years. The use of the land and the responsibility for payment of property
taxes until the sale is complete are negotiable terms of the agreement. The
seller benefits financially by spreading the income and the taxable gains
over several years. The amount of taxable gains depends on whether or not
the land is sold at fair market value.
Options
to Purchase
A landowner may desire to sell his or her land to a land trust or agency that
is not in the position to purchase it immediately. The landowner can sell
or grant an option to the buyer which guarantees the opportunity to purchase
the land in the future. An option establishes a price at which the buyer could
purchase the land during a specified period of time.
Partial
Development/Partial Conservation
A landowner, by developing part of their land and donating or restricting
the other part, may generate income as well as a charitable deduction. The
deduction could offset income from the sale of the development as well as
income from other sources. This arrangement creates many possibilities where
the landowner can fulfill both financial and conservation goals.
More
Details about Conservation Restrictions
Conservation restrictions (CRs) are an important tool that BTA/BOLT uses to
help landowners preserve their land. A CR is a permanent agreement between
a landowner and a conservation organization recorded at the registry of deeds
that forever protects the land's scenic and natural features. The landowner
retains ownership of the land which means the land can be sold, bequeathed,
or transferred and the CR limits what can be done on the property. Each CR
is custom tailored to fit the needs of the landowner and the characteristics
of the land. For example, although most CRs generally prohibit development,
some limited development envelopes or building lots may be reserved for future
use. Many other uses may be permitted as well, such as haying, harvesting,
forestry management, farming, and recreational activities. In many cases,
landowners lease their land for agricultural purposes to generate income.
In addition to the conservation values protected, a gift or bargain sale of
a CR may result in substantial income and property tax savings for landowners
and estate tax savings for their heirs.
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