As you look to the future, questions may arise concerning the fate of your property. What will happen to the land? Will your heirs be able to maintain it? Will it remain undeveloped? Will others be able to share in its beauty?
One answer should become clear: if you care about your land and want to pass it on to the next generation, you need to protect it.
By donating land for conservation, you can help to ensure that future generations will enjoy a place you have cherished. It’s especially appropriate for a conservation organization to own land with recreational potential or fragile habitat.
Donating land may be attractive to landowners who:
- treasure their property and want to see it preserved for the common good;
- own property they no longer wish to use;
- own highly appreciated property, the sale of which would prompt a high capital gains tax;
- own substantial real estate holdings and wish to reduce property and estate tax burdens;
- recognize that greater expertise is needed to protect and manage the land; or
- have no heirs willing or able to protect the land’s conservation values.
Outright donations of conservation land offer several advantages. They are simple transactions that provide maximum income and estate tax benefits (while avoiding capital gains tax), and they transfer ownership and management responsibilities to a nonprofit organization. Most important, they ensure the land’s permanent protection.
Property not suited to long-term conservation ownership may still be donated to a land trust. If the donor is willing, the organization can then resell the property (protected by an easement, if warranted) and use the proceeds to benefit its conservation programs.
Land donations for permanent conservation ownership can accomplish many different objectives but must always offer a genuine public benefit. Not all proposed donations meet this test. The value of property gifts over $5,000 must be substantiated by a qualified appraisal to be eligible for a charitable gift deduction on income taxes.
Kennebunk Land Trust has limited funds for land purchases, but it does acquire properties for long-term conservation. Several techniques help the Trust to stretch conservation dollars while providing some compensation for landowners.
Fair Market Value Sale
Selling land at fair market value to a conservation organization may seem to landowners like an ideal solution, but nonprofit groups rarely can afford such acquisitions. Purchases at fair market value are generally reserved for exceptional parcels that face an imminent threat of inappropriate development.
Many landowners come to realize that a sale at fair market value may not even be desirable. Capital gains taxes and selling costs (such as the realtor’s commission) substantially reduce profits, particularly for landowners in higher tax brackets or for those selling highly appreciated property.
A bargain sale, where property is conveyed at less than its fair market value, increases the chance that a conservation organization can purchase it. The landowner and purchasing organization negotiate a mutually agreeable price. While a bargain sale may produce a smaller financial return than a sale at fair market value, the loss can be somewhat offset by tax savings. The difference between the land’s appraised market value and its sale price is considered a tax-deductible charitable donation. For any gift of property over $5,000, the gift’s value must be substantiated by a qualified appraisal to receive a tax deduction.
The conservation easement is a legal document that guides future land uses as ownership changes, protecting a property’s key features by limiting the type and scope of development that can take place. Easement lands remain in private hands and on local tax rolls while providing such public benefits as open space, scenic vistas and wildlife habitat. Easements allow landowners to help preserve important aspects of their community and contribute to the region’s quality of life. Particularly in areas facing rapid development, easements can complement local zoning by ensuring appropriate growth and protection of sensitive areas.