Tax Savings Generated by Gifts & Donations to a Land Trust
GIFTS TO NORTH SHORE COMMUNITY LAND TRUST can help protect some of our area's most beautiful lands while enabling the donors to realize tax benefits.
Here is a summary of tax-saving gift arrangements and ideas that you may wish to consider in your financial and estate plans. Your attorney or tax planner can furnish you with more complete details.
Outright cash gifts are the simplest way of gaining tax deductions while supporting North Shore Community Land Trust. However, donations of other assets such as real estate, securities, closely-held stock, life insurance, or valuables such as artwork or coin collections, may be more appropriate to your situation. Real estate that meets the Trust's acquisition criteria would be protected in its natural state, or according to terms and conditions outlined in a conservation easement. Other donated real estate such as homes, vacant lots, or commercial and industrial properties, may be sold (with development restrictions, if appropriate), with the proceeds used to further the goals of North Shore Community Land Trust. Gifts of appreciated real estate held long-term may entitle you to an income tax deduction for its full fair market value, subject to certain limitations.
Donations of Conservation Easements
Potential federal income tax benefits vary with the particulars of each donation. Essential points to consider are the following:
QUALIFIED CONSERVATION ORGANIZATION: The easement must be granted to a qualified conservation organization, such as North Shore Community Land Trust, or a public agency charged with overseeing land conservation or historic preservation programs.
CONSERVATION PURPOSES: An easement must be granted exclusively for conservation purposes such as preservation of natural habitats or resource lands, historic or cultural sites, unique scenic landscapes, wildlife corridors or connections to other preserved parcels, areas of concern for public education or recreation, or open spaces in the vicinity of intense land development. In general, the maximum allowable deductions arise from conservation easements donated over large tracts of open space in areas where development pressures are intense.
PERMANENCE: The easement must be granted in perpetuity.
AMOUNT OF DEDUCTION: The amount a property owner can deduct for a donated easement generally equals the reduction in the property's value due to the easement (the difference between the property's independently appraised value before the easement is granted and after the easement's restrictions take effect).
APPRAISALS -The appraisal that determines the easement value must meet strict federal substantiation requirements as specified in federal tax law regarding conservation easements.
Limits on Deductions
Taxpayers cannot eliminate all of their taxable income by making charitable donations, no matter how large the donations. In general, the deduction for charitable donations of appreciated property cannot exceed 30 percent of the taxpayer's adjusted gross income, although any excess amount may be carried forward and deducted over the five succeeding years. Under some circumstances, the donor may be subject to the Alternative Minimum Tax. An accountant or tax lawyer can determine whether the AMT will apply to your situation.
Many heirs to expensive coastal properties, large historic estates and to large tracts of open space --farms, ranches, and timberland in particular-- face substantial estate taxes. Even if heirs wish to keep inherited property in its undeveloped condition, the federal estate tax is levied not on the current use value of the property, but on its "highest and best use," or the amount a developer or speculator would pay. The resulting estate tax can be so high that the heirs must quickly sell the property to pay the taxes.
A conservation easement can reduce estate taxes because the donation of the easement reduces the value of the property. This easement can be devised (donated) as part of a will, and then deducted from the taxable estate. The gift of a qualified easement must be included within the donor's will and cannot be modified after death.
Local Real Property Taxes
Local real property tax assessments are based on a property's fair market value, which considers the property's development potential. If a conservation easement reduces the development potential of the property and limits its use, then the level of assessment and, accordingly, the amount of real property taxes, may be reduced. Tax laws change. You should consult your lawyer or tax planner for further details. Professional financial counsel is essential because each donor's tax situation is unique.
Parts of the above information were excerpted from The Conservation Easement Handbook: Managing Land Conservation and Historic Preservation Easement Programs, by Janet Diehl and Thomas S. Barrett. Other outstanding references are the series of books Preserving Family Lands: A Landowners Introduction to Tax Issue's and Other Considerations, by Stephen J. Small and Common Ground, by John and Maile Bay of the Pacific Islands Lands Institute.