Great News For Land Owners and Those Interested in Purchasing Large Tracts of Land for Sale - Enhanced Tax Incentives Extended
This blog post was brought to you by Terry Boyle who assists buyers and sellers of distinctive and complex real estate transactions on the South Shore and South Coast/Buzzards Bay real estate markets of Massachusetts.
As fall turned into winter in 2010, there were the usual year end jitters for retailers, travelers, and college football fans, but this year, there was another group not typically included in those biting their nails when the New Year approached: large land owners, land conservation groups, open space advocates, and real estate advisory firms like LandVest. This last group was taking its turn looking into the great unknown of the New Year due to the United States Congress debate on whether it was still appropriate to offer federal tax incentives to private land owners in return for their permanent voluntary donation of land development rights.
Further, even if Congress did decide to continue the program and offer incentives, it was unknown at what rate.
Background: Since 1891, when the first regional land trust in the US, The Trustees of Reservations, was founded, land trusts (or conservancies, or trusts) have been working to conserve or protect a variety of real estate that is seen as having inherent value, including, but certainly not limited to: land, natural resources, cultural resources, scenic corridors, archeological sites or battlefields, and marine resources. The Land Trust model now exists, in some form, throughout the world.
Land trusts in the United States typically use a Conservation Easement (or Restriction) to memorialize an agreement between the owner of the land or resource and the organization. This easement or restriction exists in perpetuity and becomes appurtenant to the property. In return for this restriction of property rights, an owner in the United States typically receives a federal and in some cases a State tax credit.
The Conservation Easement does not have to completely restrict the property. The Conservation Easement is a flexible document that can be crafted to ensure that the private landowner is allowed to continue to own and use the land. Land trusts can hold easements on protected property that allow for continued recreation in the form of hunting, hiking, camping, wildlife observation, or other responsible outdoor activities. It is also typical that easements can allow for continued agriculture, ranching or logging on the protected property if appropriate.
The federal tax benefits to the private landowner expanded in 2006 when new legislation signed by President George W. Bush expanded the amount that conservation easement donors could deduct. With the passage of the Farm Bill in the summer of 2008 these expanded federal income tax incentives were extended such that they also applied to all conservation easements donated in 2008 and 2009.
These expanded tax incentives expired at the end of 2009, and it became difficult to predict the future of this federal tax incentive program. By mid 2010, land owners, land conservation groups, agricultural and timber groups, and real estate advisors were all forced into “wait and see” mode. Ultimately, at the end of 2010 Congress renewed without change the enhanced tax incentive for private landowners who protect their lands with voluntary conservation restrictions. The enhanced incentive will now be effective through December 31, 2011, and it is retroactive to January 1, 2010.
Conservation-minded landowners now have until the end of 2011 to take advantage of the enhanced incentive for donating voluntary conservation restrictions to permanently protect important natural resources on their lands. The continued enhanced incentive:
- Raises the deduction a donor can take for donating a voluntary conservation restriction from 30% (pre 2006) of their income in any year, to the current rate of 50%; and
- Increases the number of years over which a donor can “spread” deductions from the gift from 6 years (pre 2006), to the current rate of 16 years.
- Landowners who can claim more than 50% of their income from farming or forestry can claim up to 100% of their annual gross income in charitable donations for conservation easements.
This continued tax incentive is an essential component in some real estate valuation scenarios and should be completely understood by land owners before making decisions concerning a real estate asset with some measurable “land component”. LandVest has extensive experience helping landowners understand and explore the options provided by the donation of property rights for charitable purposes.
March 2011 will mark the 10th anniversary of the Pingree forest easement which was conceived and directed by LandVest Senior Advisor Keith Ross when he was the Vice President and Director of Land Protection for New England Forestry Foundation. At 762, 192 acres Pingree forest conservation is still the largest in the country.
If you would like more information please contact Terry Boyle Tboyle@landvest.com.
Click for more information regarding LandVest’s Conservation and Real Estate Consulting Services.