Volunteers take a break from walking the land of a potential NPC project.
Doing nothing to protect it may doom your land to development.
Estate taxes are one reason. Federal taxes can be as high as 55% of a property's fair market value, virtually forcing heirs to sell it. And, of course, future owners may be compelled by ever-increasing property values--or simply by a lack of appreciation for the land--to sell it for development.
A land trust like the Northcentral Pennsylvania Conservancy is a great resource for assisting landowners find ways to protect their land. Here are a few of the options available:
Conservation Easement
A legal agreement between a landowner and a land trust or government agency that permanently protects land while the landowner continues to own it. Donating the easement can result in reduced income tax and estate tax.
Land Donation
Donating conservation land to a land trust is a wonderful way to share its beauty with future generations. The donation can even be set up in a way that allows you to continue to live on the land or to receive a life income.
Bargain Sale of Land
Selling land to the land trust at less than its fair market value can make it affordable for the land trust and provide tax benefits for the landowner.
CONSERVATION EASEMENTS
When you donate a conservation easement to a land trust, you give up some of the rights associated with the land. For example, you might give up the right to build additional structures, while retaining the right to grow crops. Future owners will also be bound by the easement's terms. The land trust is responsible for making sure the easement's terms are followed.
Conservation easements offer great flexibility. An easement on property containing rare wildlife habitat might prohibit any development, for example, while one on a farm might allow continued farming and the building of additional agricultural structures. An easement may apply to just a portion of the property, and need not require public access.
A landowner sometimes sells a conservation easement, but usually easements are donated. If the donation benefits the public by permanently protecting important conservation resources and meets other federal tax code requirements--it can qualify as a tax-deductible charitable donation. The amount of the donation is the difference between the land's value with the easement and its value without the easement.
Placing an easement on your property may also result in property tax savings.
Perhaps most important, a conservation easement can be essential for passing land on to the next generation. By removing the land's development potential, the easement lowers its market value, which in turn lowers estate tax. Whether the easement is donated during life or by will, it can make a critical difference in the heirs' ability to keep the land intact.
LAND DONATION
Donating land releases you from the responsibility of managing the land and can provide substantial income tax deductions and estate tax benefits (while avoiding any capital gains taxes that would have resulted from selling the property). Most important, if the land is donated because of its conservation value, it will be protected. (Although our focus here is on conservation land, commercial and residential properties can also be donated to a land trust, with the understanding that the organization will sell the land to support its conservation work.)
Donating a remainder interest in land By donating a remainder interest, you can continue to enjoy your land and 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.
Donating land by will Land donations that establish a life income
Your 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. You place the 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 beneficiaries you specify receive 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.
BARGAIN SALE
MORE INFORMATION
Note: The information on this website is designed to provide accurate, authoritative information in regard to the subject matter covered. The Northcentral Pennsylvania Conservancy is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of experienced professional advisors should be sought.
A conservation easement (or conservation restriction) is a legal agreement between a landowner and a land trust or government agency that permanently limits uses of the land in order to protect its conservation values. It allows you to continue to own and use your land and to sell it or pass it on to heirs.
Donating land for conservation purposes is truly one of the finest legacies a person can leave to future generations. It may be the best conservation strategy for you if you do not wish to pass the land on to heirs; own property you no longer use; own highly appreciated property; have substantial real estate holdings and wish to reduce estate tax burdens; or would like to be relieved of the responsibility of managing and caring for land.
An outright donation is not the only way to give land. You can continue to live on the land by donating a remainder interest and retaining a reserved life estate. In this arrangement, you donate the property during your lifetime, but continue to live on and use the property. When you die (or sooner if you choose), the land trust gains full title and control over the property.
If you want to own and control your land during your lifetime, but assure its protection after your death, you can donate it by will. You should make sure the chosen recipient is willing and able to receive the gift.
If you have land you would like to protect by donating it to a land trust, but need to receive income during your lifetime, you might use a charitable gift annuity. In a charitable gift annuity, you agree to transfer certain property to a charity, and the charity agrees to make regular annuity payments to one or two beneficiaries you specify for life.
If you need to realize some immediate income from selling your land, yet would like the property to go to a land trust, a bargain sale might be the answer. In a bargain sale, you sell the 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 entitles you to a charitable income tax deduction based on the difference between the land's fair market value and its sale price.
The Conservancy has additional written material on land protection options available through its office. Please call 570.323.6222 or submit your request for more information by going to the Contact Us page of this website.