landtrust for central nc - two rivers seminar

The LandTrust For Central North Carolina

IREDELL

DAVIE

DAVIDSON

ROWANRANDOLPH

CABARRUS

STANLY

MONTGOMERY

ANSON

RICHMONDYadkin River Basin

• 47 projects completed• 5702 acres protected• 4909 acres planned/pending

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Conservation EasementsConservation Easements

Legal restriction on how property can be Legal restriction on how property can be developed into the future.developed into the future.

Have been in use for nearly a century, and Have been in use for nearly a century, and courts have universally upheld.courts have universally upheld.

Usually perpetual (permanent), although can Usually perpetual (permanent), although can be done for term of yearsbe done for term of years

Holding entity can be local land trust, local Holding entity can be local land trust, local Soil and Water Conservation District, Soil and Water Conservation District, National Land Trust, or “sham” non-profitNational Land Trust, or “sham” non-profit

Conservation Easements (Cont)Conservation Easements (Cont)

Flexible documents custom tailored to each Flexible documents custom tailored to each property or landownerproperty or landowner

Require baseline documentation and Require baseline documentation and establishment of property’s resources to be establishment of property’s resources to be protectedprotected

Become LIABILITY of holding conservation Become LIABILITY of holding conservation organization! Must be monitored, and organization! Must be monitored, and violations must be corrected. violations must be corrected.

Conservation Values

FarmlandHistoric

PropertiesScenicVistas

Rivers/StreamsRiparian Land

WildlifeHabitat

EducationRecreation

20 0 20 40 Miles

Inventory CompletedInventory Not BegunInventory Underway

N

EW

S

Natural Heritage Inventory

WHY?

1900 acre Cooleemee Plantation

Pisgah Covered Bridge

300 acreSouth Yadkin Refuge

Eagle Point Park

317 acre John Green Farm

Clarke Creek Blue Heron Rookery

Implementation & Implementation & Conservation Economics 101Conservation Economics 101

…Doing Well While Doing Good…

Who Can Apply For Grants?Who Can Apply For Grants?

$ $ $Money

Available

$ $ $Money

Available

Protection of Parks

Protection of Natural Heritage

Protection of Farmland

Protection of Water Resources

How Do We “Protect” Land?How Do We “Protect” Land?

Conservation EasementsConservation Easements

Restricts use of property in perpetuity; protects Restricts use of property in perpetuity; protects wildlife habitat, farmland, forest land, park lands, wildlife habitat, farmland, forest land, park lands, and natural areasand natural areas

Separation of Separation of mostmost development rights from land development rights from land

Usually donated; landowner gets tax deductionUsually donated; landowner gets tax deduction

Determining the value of Determining the value of Conservation EasementsConservation Easements

100 acres of land worth $2,000/acre 100 acres of land worth $2,000/acre unrestrictedunrestricted

100 X $2,000 = $200,000100 X $2,000 = $200,000 Easement placed on it limiting future Easement placed on it limiting future

development to no more than two new development to no more than two new houses (one house per 50 acres)houses (one house per 50 acres)

Fair market value with the easement Fair market value with the easement restrictions now $1,200/acrerestrictions now $1,200/acre

100 acres X $1,200 = $120,000100 acres X $1,200 = $120,000 Value of Conservation Easement = Value of Conservation Easement =

$80,000$80,000

Tax Benefits of ConservationTax Benefits of Conservation

Value is deductible for Federal Income Tax Value is deductible for Federal Income Tax purposes, used against 30% of income, can purposes, used against 30% of income, can be spread over six yearsbe spread over six years

NC Income 25% Tax Credit up to $250,000 NC Income 25% Tax Credit up to $250,000 for individuals, $500,000.00 for corporations, for individuals, $500,000.00 for corporations, can be spread over six yearscan be spread over six years

May reduce property taxes & estate taxesMay reduce property taxes & estate taxes

EXAMPLE OF INCOME TAX SAVINGSSarah & George earn $100,000 together.

•They’ll pay +/- $39,000 to IRS•They’ll pay +/- $7,000 to NC DORSARAH AND GEORGE DECIDE TO

DONATE A CONSERVATION EASEMENT TO THE LANDTRUST VALUED AT $200,000

1. Can reduce reportable income to $70,000 for 6 years to IRS.• Would pay +/- $24,000 in taxes for 6 years ($90,000

savings)

2. Will get a $50,000 tax credit, therefore would pay NO state taxfor 6 years ($42,000 cash savings),

Federal Inheritance TaxFederal Inheritance Tax

Spouse pays no taxSpouse pays no tax

For 2004 no tax if estate is less than For 2004 no tax if estate is less than $1.5million, $2 million in 2006$1.5million, $2 million in 2006

39-50% current tax rate 39-50% current tax rate

Section 2031( c )Section 2031( c )Federal Tax CodeFederal Tax Code

Additional Federal tax exclusion for Additional Federal tax exclusion for property under easement, 40% of value property under easement, 40% of value of the land, excluding buildings, up toof the land, excluding buildings, up to

$500,000 in 2004, Property under $500,000 in 2004, Property under easement must have been owned by easement must have been owned by family for at least 3 yearsfamily for at least 3 years

ExampleExample Davie Johnson owns 300 acre farm on Highway 73 near Davie Johnson owns 300 acre farm on Highway 73 near

Concord worth $4.5 million ($15,000/acre). Davie is a widower. Concord worth $4.5 million ($15,000/acre). Davie is a widower.

– If Davie dies TODAY $3,000,000 subject to EstateIf Davie dies TODAY $3,000,000 subject to EstateTax and kids would pay approximately $1,300,000 in taxes.Tax and kids would pay approximately $1,300,000 in taxes.(kids have to sell all or part of the family farm (kids have to sell all or part of the family farm ))

- If Daniel dies in 2007 and farm is worth $6,000,000, If Daniel dies in 2007 and farm is worth $6,000,000, then $4,000,000 would be subject to Estate Tax and kids would then $4,000,000 would be subject to Estate Tax and kids would pay more than $1,500,000 in taxes. (Assuming no additional pay more than $1,500,000 in taxes. (Assuming no additional changes in Tax Code)changes in Tax Code)(kids have to sell all or part of the family farm (kids have to sell all or part of the family farm ))

Can You Do Better Than That??Can You Do Better Than That??

YOU BET!!!YOU BET!!!

Let’s say Davie called The LandTrust and put a Let’s say Davie called The LandTrust and put a conservation easement on hisconservation easement on his

$4.5 million dollar farm in 2004.$4.5 million dollar farm in 2004.

-- Appraiser deems farm to be “devalued” Appraiser deems farm to be “devalued” to to $2.5 million dollars. Daniel dies 3 $2.5 million dollars. Daniel dies 3 years later years later and farm appraises at $2.8 and farm appraises at $2.8 million dollars as million dollars as restricted. Because of 40% permitted reduction, restricted. Because of 40% permitted reduction, farm deemed to be farm deemed to be $1.44 million and kids pay $1.44 million and kids pay NOTHING!!!NOTHING!!!