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Conservation Options for Private Landowners
Introduction
This section is intended to provide an overview of the most common techniques
for voluntary land protection. It should not be used as the only reference in
making a decision. Landowners are encouraged to seek guidance from a tax
attorney or accountant in order to determine the most suitable option. The
Truro Conservation Trust can identify attorneys, surveyors, appraisers,
accountants, and land planners familiar with local conservation techniques.
GIFTS OF LAND
Outright Donation (Fee Simple Transfer)
Giving the land to a nonprofit conservation organization or to a government
agency is the simplest way to protect land. It is only necessary to obtain
acceptance from the agency or organization to which the land will be donated,
prior to deeding the land. A gift insures long-term protection of the land. The
donor receives tax benefits in the form of federal income tax deductions,
potential estate tax benefits, and relief from property taxes. The donor is
relieved of management responsibilities, and automatically absolved of liability
associated with any trail use.
About 90 percent of the properties preserved on Cape Cod were donated to a
local land trust or town conservation commission. About 50 parcels per year are
donated outright in this manner. Typically, the only cost to the land donor is
for an appraisal, which certifies the value of the donated land for federal
income tax deductions. Appraisals are needed when the claimed value of the
deduction is more than $5,000. Land trusts usually ask donors to pay remaining
property taxes on the land before it becomes tax exempt in the next fiscal year.
Donation by Will (Bequest)
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 and income taxes for the property during
his or her lifetime. But removing the land from an estate will reduce
inheritance taxes.
Donation with a Reserved Life Estate
A donation with a reserved life estate may be made to a government agency or
conservation organization. The donor retains the use of the land during his or
her lifetime, and the lifetimes of specified family members. A reserved life
estate insures that the land is protected in perpetuity, yet allows the donor to
reside on it and maintain the land. The tax advantages with a retained life
estate are less that those with an outright donation.
SALE OF LAND
Bargain sale
For a landowner interested in conservation who cannot donate land directly, a
bargain sale of property to a land trust insures the land will be protected.
With this option, the land trust purchases land at less than full-market value.
The benefit to the landowner is twofold:
1. the sale produces needed income and,
2. he/she can claim the difference between the sale and full-market value as a
tax-deductible donation.
More intangible but equally important, landowners can be assured that valuable
land and water resources will be protected.
Sale at Fair Market Value
Sale at fair market value is the sale of property at the price a knowledgeable
buyer would pay for the land. Most conservation organizations are not able to
purchase land at full value due to insufficient funds. If the land is sold at
full value and has appreciated in value since its purchase, the seller will be
liable for income tax on the capital gain. This can affect the net profit from
the sale. There are no charitable deductions associated with a sale at full
value.
CONSERVATION RESTRICTION
Donation of a Conservation Restriction
A conservation restriction (or CR) is a voluntary, legal agreement between a
landowner and a land trust, such as the Truro Conservation Trust, or a
government agency, that limits a property's uses in order to protect its
conservation values.
When you own land, you also hold many rights associated with it, such as the
right to build structures. When you create a conservation restriction, you agree
to modify or give up some of those rights. For example, you might give up the
right to build more houses, while retaining the right to keep a view open or
create gardens. Future owners also will be bound by the terms of the agreement.
In exchange for giving up the right to develop the land, the assessed value of
the property is typically greatly reduced, substantially cutting down on the
property tax due on the land every year. Also, a charitable deduction is
available for taax purposes the year that the CR is donated. The conservation
restriction is a very flexible tool, and can be an exceedingly useful tool in
estate planning.
The conservation restriction (called a "conservation easement" in some states)
is drafted in a way to protect critical open space resources and meet the
financial and personal needs of the landowner. In some cases, a conservation
restriction may apply to just a portion of the property, leaving the option of
development open for the remaining part. Most restrictions are intended to be
permanent.
The holder of the restriction takes on the responsibility and legal right to
enforce the agreement. If a future owner or someone else violates the agreement
(perhaps by erecting a building the restriction doesn't allow) the holder will
work to correct the violation.
Owners of highly valued property may also use the restriction to lower the value
of their estate for estate tax (or inheritance tax) planning. The combined
federal and state estate tax can be as high as 55%, sometimes forcing children
to sell the property simply to pay off the "death taxes". A conservation
restriction can lower the estate tax, and perhaps provide the way for heirs to
retain title to a cherished family asset. Estate planning with the aid of
professional advisors is critical.
Sale of a Conservation Restriction
A conservation restriction is also sometimes sold by the landowner to the
acquiring entity. All of the above comments regarding a donated CR still hold,
with the exception that no charitable tax deduction is available, unless it is a
bargain sale of the CR.
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