Gift of Land or Outright Donation (Fee Simple Transfer)

Giving your land to a non-profit conservation organization like Yarmouth Conservation Trust (YCT) is the simplest way to protect land. It is only necessary to obtain approval and acceptance from YCT or the organization or agency (town, state, and federal governments are also qualified to receive land in this way) to whom the land will be donated, prior to deeding the land. If you are interested in a confidential conversation about the prospect of giving land, then call YCT’s President Don Henderson at 1 (508) 776 - 0629 or call conservation advisor Mark Robinson at 1 (508) 362-2565 or email him at compact@cape.com.

A gift ensures long-term protection of the land. As a donor, you can be eligible for tax benefits in the form of federal income tax deductions, potential estate tax reduction, and relief from property taxes. A donor is relieved of management responsibilities, and automatically absolved of liability associated with any trail use or other activity.

The majority of YCT’s protected properties have been received as gifts. About 80 percent of the properties preserved by land trusts on Cape Cod have been donated. About 30 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 ensure 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 potential inheritance tax for any heir(s).

Combined, Cape Cod land trusts typically acquire one property per year via bequests. These properties tend to be large and valuable, often part of a family's estate. In 1993, the Barnstable Land Trust acquired a large coastal woodland fringed with salt marsh through a bequest. The donation lowered the value of the family estate by about $1 million, enabling the family to retain most of the remaining land, rather than selling it for development to pay high 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.

On Cape Cod, in 1993, a family donated five acres of dune and salt marsh to the Truro Conservation Trust, while reserving the right to use the parcel for family boating and beach bathing during their lifetimes. The reserved right slightly lowered the value of the land gift.


Gifts of Other Properties

Many conservation organizations and agencies will accept a gift of property with little or no environmental value, sell it on the open market (with restrictions, if appropriate), and use the money for the preservation of other ecologically significant lands. The landowner is eligible for the same tax benefits as a gift of conservation land.

This option has been rarely used on Cape Cod. In 1988, the Brewster Conservation Trust received a gift of title to a time-sharing unit in a local condominium. The Trust sold the unit for $2,000 and put the money towards the purchase of the Windmill Meadows parcel. The donor received a tax deduction for the value of the time-sharing unit.

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View of YCT's 34 acre salt marsh from YCT's Green Hill Farm Conservation Restriction

CONSERVATION RESTRICTIONS or EASEMENTS

A conservation restriction, also known as a conservation easement, is a legally binding agreement between a landowner and a qualified nonprofit organization such as the Yarmouth Conservation Trust (YCT). A qualified public agency from town, state, or federal government is also eligible to hold a conservation restriction. The landowner retains title to the property, but extinguishes certain development rights in the property.

Recent federal income tax law changes have made 2006 and 2007 the best years ever to donate a conservation restriction and reap powerful new charitable deductions.

These new incentives make it easier for landowners to preserve land:

• A conservation restriction donor can deduct up to 50% of their adjusted gross income in any year (previously, only 30% each year);
• Conservation restriction donors can use the deductions for as many as 16 years (previously, only 6 years).
  These changes allow modest-income landowners with high-value land to deduct much more than they could under the previous rules. But you need to act soon: conservation restrictions typically take about four months to complete and need to be recorded before the end of 2007 to realize the new tax benefit.
  For more information call Mark Robinson, YCT conservation advisor, at 1 (508) 362 - 2565

Conservation restrictions typically restrict dumping, mining, paving and development of houses, while allowing traditional family uses of the property. The restricted land can be sold, but the restriction runs with the land to the new owner.

Tax authorities recognize the fact that the landowner has relinquished a significant portion of the property's economic value by extinguishing his or her right to develop the property to the fullest extent. The Internal Revenue Service may grant income tax deductions and estate tax reductions equal to the value of the land forgone by donating a permanent conservation easement. The landowner must conduct an appraisal of the extinguished value to justify the deduction. YCT is available to discuss and shepherd the conservation restriction process as well as explain potential tax relief, but also recommends that you consult your own tax advisor about any potential tax savings.

Lands with conservation restrictions are often granted local property tax relief. Cape Cod towns typically offer a practice of property tax reductions to landowners who place conservation easements on their land. The reduction in Yarmouth can be 80% without allowing public access (e.g. trail) or 95% if public access is allowed. The property tax reduction reflects the diminution in value caused by extinguishing certain development rights such as residential, commercial, recreational, and/or industrial building potential.

Conservation restrictions have been used effectively on Cape Cod to protect significant parcels of land. To date, more than 5,000 acres have been protected in this manner. Types of land that have been protected by conservation restrictions include salt marshes, barrier beaches, islands, dunes, pine barrens, shrub swamps, meadows, pond shores, and freshwater streams.

About a dozen properties are preserved each year on the Cape by conservation restriction. A recent example on Cape Cod found that 5.5-acre parcel of buildable land was worth $295,000 before the conservation restriction was donated, and $85,000 after the restriction. The landowner was entitled to a $210,000 charitable deduction for federal income tax. The landowner’s heirs could also benefit from reduced inheritance tax because the estate’s value was lowered. The town reduced the land's assessment by 80 percent as well.

Deed Restrictions

Deed restrictions guiding the future use of property may be placed in the deed at the time the property is transferred. Deed restrictions differ from conservation easements in that there is not a third party that assumes responsibility for monitoring and enforcing the restrictions placed on the land. The seller is responsible for enforcing restrictions placed on a parcel of land before it is sold. If the seller has placed restrictions in the deed, and retains no land nearby, he or she may not be able to enforce the restrictions against the subsequent owners of the land. Under Massachusetts common law, most deed restrictions expire after 30 years.

Deed restrictions will usually affect the market value of the land if they significantly limit development potential. The presence of a restriction may lower the price if the property is sold, or lower the value of the gift if the land is donated to a conservation agency. The IRS does not allow a claim for a loss in value resulting from deed restrictions as a charitable deduction. A donation of land to a conservation agency, in which the agency inserts the deed restrictions, does allow a claim of the full fair market value of the land as a charitable contribution.

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SALE of LAND

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 owing to the high cost of land and 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.

Many Cape Cod towns have purchased open space at fair market value, owing to the intense competition for land during the development boom. A land trust has almost never paid full value for land, although there are exceptions.


Bargain or Charitable Sale

A bargain sale is part donation and part sale to a government agency or nonprofit organization such as Yarmouth Conservation Trust (YCT). A bargain sale may entitle the seller to a federal income tax deduction for a charitable contribution and to a reduction in capital gains tax. The value of the federal income tax charitable contribution for the seller equals the difference between the fair market value and the lower negotiated selling price for charity. The net cash to the seller at the bargain price may come close to the fair market sale when the tax deduction is taken into account.

Capital gains must be calculated on the sale part of the transaction. A gain is recognized if the property is sold for more than its basis (the basis is usually equal to the original cost, plus improvements and minus depreciation). For bargain sales, the basis of the property must be allocated proportionately between the part sold and the part donated. The income tax charitable deduction from a bargain sale could be greater that the capital gains tax liability that results from the sale at fair market value.
In the 1990s, the Truro Conservation Trust purchased six acres of beachfront land for $200,000; the Orenda Wildlife Land Trust purchased 28 acres of land in Brewster at less than $5,000 per acre; and the Chatham Conservation Foundation purchased 23 acres along Goose Pond for $382,000. All of these purchases were paid for through private fundraising. In each case, the seller received substantial tax deductions for selling below appraised fair market value to a charity.

Installment Sale

An installment sale 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.

The Bourne Conservation Trust has used this technique successfully to buy many parcels. In a few cases, the sellers arranged financing by "taking back" mortgages, enabling the land trust to raise money and pay off the purchases over time.

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