Land Protection FAQs for Landowners
Who can I speak to about my land protection options?
Why should I consider protecting my land?
What might be the best land protection option for my land?
What are Conservation Restrictions or Easements?
What are options for donating my land?
What is a bargain sale?
What is the Forest Legacy program?
Are there federal or state tax incentives for protecting by land through a Conservation Restriction?
Answer: Do you own land that you would like to see remain free from development--for your lifetime and for future generations? Doing nothing to protect it may doom your land to development. Why? 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. Land trusts are experts at helping landowners find ways to protect their land. Here are a few of the options open to you.
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. 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. 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.
NRWA or your local land trust can help you arrive at a conservation plan that makes the most sense for you, and can put you in touch with attorneys, appraisers, accountants, and land planners familiar with conservation techniques. We recommend that you also talk with your own legal and financial advisors.
Answer: Try following this path to view possible Land Protection options that may fit your particular needs and interests.
Do you wish to retain ownership of the land?
Do you wish to protect the land permanently?
- If Yes:
- Conservation Restriction
- Donation of an Undivided Interest
- Donation of land by Bequest (will)
- Donation of a Remainder Interest
- If No:
- Chapter 61 Open Space Tax Program
- Deed Covenants and restriction
- Lease to a Conservation Organization
- Management Agreement
- Land Stewardship
Is monetary compensation needed?
- If Yes:
- Sale at Fair market Value
- Bargain Sale
- Installment Sale
- Charitable Remainder Trust
- If No:
- Lifetime Donation of Land
- Donation by Will
- Donation of a Remainder Interest
- Donation of an Undivided Interest
Do you wish to limit the future uses of the property when you convey title?
Combinations of options are often used to achieve specific goals. (Adapted from Land Conservation Options. 2001)
Answer: A conservation restriction (MA) or conservation easement (NH), we’ll refer to both as CRs here, 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. When you donate a CR 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 also will be bound by the CR's terms. The holder of the CR, whether a land trust, municipality, state agency, or other entity, is responsible for making sure the CR's terms are followed.
CRs offer great flexibility. A CR 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. A CR may apply to just a portion of the property, and need not require public access.
A landowner sometimes sells a CR, but many times CRs 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 CR and its value without the CR as determined by an appraisal. Placing a CR on your property may also result in property tax savings.
Perhaps most important, a CR can be essential for passing land on to the next generation. By removing the land's development potential, the CR lowers its market value, which in turn lowers estate tax. Whether the CR is donated during life or by will, it can make a critical difference in the heirs' ability to keep the land intact.
Answer: 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. 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
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. 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
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.
Land donations that establish a life income
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.
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.
Answer: 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.
Answer: The purpose of the Federal Forest Legacy Program is to protect environmentally important forest areas that are threatened by conversion to non-forest uses. Traditional forest uses, wildlife, riparian areas, scenic resources, recreational resources, and cultural values are protected. The Forest Legacy Program is strictly voluntary. It is based on the idea of a "willing buyer and a willing seller."
Conservation easements (CE) in NH or conservation restrictions in MA (CR) are the Forest Legacy Program's primary tool . A CR is a permanent legal agreement between a landowner and a private non-profit conservation organization or government agency, which -- while the landowner continues to own it -- limits specified uses and development of the property and is designed to protect its natural and scenic values. The CR is perpetual. It is recorded at the local records office, so that all future owners learn about the CR and landowner responsibilities.
What are the eligibility criteria? In Massachusetts, there are four eligibility criteria. First, there must be a threat by present or future conversion to non-forest uses. [Most land in north central MA is considered threatened due to metro Boston sprawl.] Second, the land must contain one or more significant environmental conservation values. Third, it must provide opportunities for continuation of traditional forest uses. Fourth, it must have value to the region as a whole, and not just to its immediate area. Significant environmental conservation values include:
- Riparian/hydrologic areas
- Scenic resources
- Fish and wildlife habitat
- Known threatened and endangered species
- Known cultural or historic resources
- Public recreation opportunities
- Other ecological values
If you think your land meets the criteria shown above, the next step is to contact the Forest Legacy Act Sponsor, which for our region is the Nashua River Watershed Association.
What are possible financial benefits and how are landowners reimbursed? Few landowners are offered more than 75% of the fair market value for their interests in land, as determined by an appraisal conforming to Uniform Federal Appraisal Standards. It usually takes two or more years for the Federal Forest Legacy funds to be released to the state for distribution to successful landowner applicants.
Cost sharing by the Forest Service may not exceed 75% of total program cost. In other words, each project must include a minimum non-federal contribution or “match” of 25%. This non-federal portion may consist of the value of land dedicated to the Forest Legacy Program that is not paid for by the Federal government such as private, local, or land trust bargain sales and/or donations.
How are projects ranked? The National Forest Legacy core criteria are:
- Importance - The public benefits gained from the protection and management of the property.
- Threatened - Conversion to non-forest uses ranges from "possible" to "imminent", and will result in a loss of forest values and public benefits.
- Strategic - The project fits within a larger pre-existing written conservation plan, strategy, or initiative, and enhances previous conservation investments.
- Project Readiness - The landowner is committed, and the project has a high likelihood of completion within a predictable timeline. This fourth criteria is only used to break tie scores in the ranking process.
Who holds the lands or the conservation restrictions on the lands? The Forest Service grants funds to the State to acquire CR’s.; only a governmental entity can hold a CR for fee. The State or the municipality then ends up holding and monitoring the CR. This includes carrying out baseline documentation reporting (BDR), which is an inventory of the various features of the property, and the State or municipality is responsible for enforcing the conditions of the CR. Baseline documentation and annual monitoring may be done by a third party. More on workshops for Conservation Commissions and municipal officials on how to create BDRs and monitor their CRs.
What are the benefits of the Forest Legacy Program? States and regions identify important forest areas. When CR’s are used, sound forest stewardship is encouraged and the land remains privately owned. The lands and interests in land are held in perpetuity; thus, there is no loss of the Federal investment resulting from change in ownership.
Answer: Conservation restrictions leave the ownership of the land in your hands while permanently protecting important natural resources. You can continue to live on and use your property for activities such as farming, harvesting timber, and hunting, while ensuring that the land you love stays protected from housing and other development for future generations. Later, if your land is transferred or sold, the conservation restriction stays with the land.
Massachusetts State Income Tax Credit for Conservation Restriction Donation, Bargain Sale or Life Estate
In 2011 and 2012, landowners can apply for a Massachusetts Income Tax Credit if you donate land or a conservation restriction, sell land or a conservation restriction at a reduced value, or give land or a conservation restriction by a life estate. The tax credit:
- Is limited to 50% of fair market value of land or conservation restriction as determined by a qualified independent appraisal, or $50,000 maximum credit, whichever is less.
- Applies to your state tax liability during the year of the donation. If your tax credit is larger than your tax liability, the state will issue a check for the remainder of the approved credit.
- Can be utilized in addition to claiming the federal income tax deduction for a gift of land or conservation restriction as described above.
- Does not apply to all land conservation transactions: The state must still issue guidelines for this incentive, and the land must meet criteria to be determined by the state.
Read more about MA State Income Tax Credit for Land Conservation. The federal government has offered tax credits from time to time, but the most recent federal credit expired in December of 2011. Please note that the NRWA is not qualified to offer tax advice and landowners must consult with their own accountant or tax attorney.