Preserving land for your kids and grandchildren is what future generations deserve.
Do you own land that you enjoy and would like to see remain free from development–forever? Doing nothing to protect it may doom your land to development. If you sell your land, future owners may sell it for development. And federal estate taxes can be as high as 50% of a property’s fair market value, virtually forcing heirs to sell it.
LAND PROTECTION OPTIONS
A conservation easement is a voluntary legal agreement that allows a landowner to permanently protect land and limit future development in order to protect the conservation values of the land, while retaining ownership and the ability to sell. Conservation easements are perpetual. Future owners of the land are held to the terms of the agreement and the land conservancy that holds the legal agreement is responsible for monitoring and enforcing the terms.
Building envelopes for a future home site(s) can be built into the conservation easement as long as they do not disrupt the conservation value of the property. (Note: the IRS does not give you a tax deduction for building less homes in a subdivision or for a golf course, etc.). Sustainable forestry and hunting may also be allowed. A conservation easement is flexible and can be tailored to the individual needs of the landowner.
A landowner who grants a conservation easement continues to own and manage their land while restricting its use in order to protect the property’s significant natural, agricultural, scenic, and open space resources, or “conservation values.” The landowner grants the conservation easement agreement to a nonprofit organization (often called a “land trust” or “land conservancy”) or governmental entity charged with enforcing the easement’s terms.
Conservation easements that meet the requirements of the tax code are eligible for an income tax deduction. Provided certain conditions are met, easements may reduce estate taxes and often are essential for passion your land on to future generations. Land protected with a conservation easement can be fenced and posted against trespassing just like any other private property. Conservation easements do NOT require public access.
Land Donation for Conservation
Property owners can conserve their land for the future by donating their land and deeding it to a land trust now or in a will. This option may result in substantial income tax deductions or estate tax benefits.
Donating land for conservation is one of the finest legacies a person can leave to future generations. If you choose to donate your land, your land trust can work with you to identify the best arrangement. The land trust might retain ownership of the property as a permanent preserve or transfer the property to a suitable owner, such as a government agency. In some cases, the land is sold to a private owner, subject to a conservation easement held by the land trust. (Proceeds from such a sale could fund the land trust’s long-term management of the conservation easement and/or help it to protect even more land.) The full market value of land donated to a nonprofit land trust is tax deductible as a charitable gift. From the Land Trust Alliance
You may donate your property through your will or living trust. When land is donated through bequest, the donor’s estate receives an estate tax charitable deduction for the fair market value of the property, thus reducing estate taxes that are often substantial. Donating land in a will is a great way to leave a legacy. Donation by will is the method to use for those who would like to own and control land, but assure its protection after death. It’s important to make sure that the chosen recipient is willing and able to receive the gift.
If you need to sell your land but don’t want to see it destroyed by development, a land trust can help. Prior to the sale, you can work with your local land trust to place a conservation easement on the land before it goes on the market. Some land trusts can also help identify potential buyers for conserved lands. From the Land Trust Alliance
NOTE: Because you are selling or donating the development rights, you should expect to receive less money for your land than if it were sold outright. In certain cases and depending on the area, marketing the land as a one of a kind private country estate is very appealing to some buyers seeking privacy and a rural lifestyle and a one of a kind property.
In a bargain sale, you sell your land to a land trust for less than its fair market value. This not only makes it more affordable for the land trust, but offers several benefits to you: it provides cash, avoids some capital gains tax, and may entitle you to a charitable income tax deduction based on the difference between the land’s fair market value and its sale price. From the Land Trust Alliance
By donating through a remainder interest, a landowner may continue to live on land and retain a reserved life estate. In this arrangement, one donates land but continues to live on and use the property. The land trust gains full title and control over the property only after the donor is deceased. By donating a remainder interest, the landowner may be eligible for an income tax deduction when the gift is made. The deduction is based on the fair market value of the donated property less the expected value of the reserved life estate.
A charitable gift annuity is a tool for those who need a lifelong income. With a charitable gift annuity, one agrees to transfer property to a charity, and the charity agrees to make regular annuity payments to specified beneficiaries. A gift of land usually qualifies for a charitable income tax deduction at the time of the gift, based on the value of the land less the expected value of the annuity payments.
Another option for donating property and receiving regular income is a charitable remainder unitrust. One places land in a trust, first putting a conservation easement on it, if it is to be protected. Then the trustee sells the land and invests the net proceeds from the sale. One or more specified beneficiaries receives payments each year for a fixed term or for life, then the trustee turns the remaining funds in the trust over to the land trust. The gift qualifies for a charitable income tax deduction when the land is put in the trust, based on the value of the land, less the expected value of the payments.Charitable gift annuities and charitable remainder unitrusts are most useful for highly appreciated land, the sale of which would incur high capital gains tax.
Perhaps you own a fairly small property that has been in the family for years and you can’t bear the idea of it being subdivided into smaller lots in the future. While your land may not be a high priority for protection by a land trust, you may still be able to leverage it for substantial conservation and tax benefit. In this case, the landowner donates the property to a conservation organization that, in turn, places a conservation easement on it restricting future development. The organization then sells the property and uses the proceeds to support other conservation projects. The landowner may be entitled to a federal income tax charitable deduction for the value of the property. From Natural Lands Trust
Note: Always consult with your tax attorney.
If you own land and would like to conserve it, but need to receive some income, too, limited development may offer you the opportunity to do both. Simply put, limited development means subdividing off fewer lots for housing than local zoning codes would permit. This allows the landowner to realize the financial gain of developing some of the land while protecting most of it.
In fact, the landowner may be able to sell the resulting home lots for a higher price than if he or she had built at the maximum number of units permitted by local zoning.
Jackson Meadow, a conservation subdivision in MN.
Conservation Subdivision Design
For landowners who want or need to sell their land for development, yet want to see a majority of the property preserved. Accommodates the same number of home sites as conventional development. Reduces costs compared to conventional development and in many cases is more profitable and faster selling. Learn how one family preserved the integrity of their 123-acre family farm property while simultaneously maximizing its value in the article Paternal Gift Farm (pdf).
Find a Land Conservancy Near You
A land trust, also called a land conservancy, is a private, nonprofit organization that works with landowners to conserve land by assisting with direct land transactions primarily the acceptance of donations of land or conservation easements, or in somewhat rarer cases, the purchase of land or conservation easements. Visit the Land Trust Alliance website to find a land trust or land conservancy near you. Find a national land trust.
Always consult with a qualified tax attorney. NOTE: Corporate owned lands (camps, clubs etc.) are subject to different income tax deductions with conservation easements than private landowners. Always consult with a qualified tax attorney.