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Conservation begets tax benefits
By Emily Sussman
Banner Staff
WELLFLEET — In a town with such unusually high property values, relinquishing the building rights to one’s land might seem about as financially savvy as starting a shellfish farm in the Midwest. But that’s exactly what more than 25 residents gathered to learn about Saturday morning in a presentation sponsored by the Compact of Cape Cod Conservation Trusts.
As it turns out, there are some very good reasons for turning perfectly developable land over to a non-profit land trust, not the least of which are powerful income tax incentives established by the federal government last August.
The focus of Saturday’s meeting was the conservation restriction (CR), a voluntary legal agreement that can be initiated by a property owner to permanently preserve all or part of the lot as a no-build zone. Though an outside entity, such as the Wellfleet Conservation Trust, holds the CR, the property owner keeps the title to the land. The owner can also retain full rights to a “building envelope,” which can include an existing structure, such as a house, along with a designated amount of land around it. He or she can also decide what rights to retain in the CR (which is also known as a conservation easement), such as gardening or installing a split-rail fence and walking trails.
According to Mark Robinson, director of the Compact, a CR should appeal to those who can’t bear the thought of Wellfleet turning into a densely clustered collection of manicured McMansions — or, perhaps more likely, to residents who might be eager to save a bundle, since a CR can cut both income taxes and property taxes considerably.
As far as its effect on a federal income tax return, the diminished value of the restricted land can be used as a deduction for up to 16 years. If a piece of land that’s appraised at $1 million drops to $200,000 in value as a result of a CR, the amount of the charitable deduction would be $800,000 — the difference between the two figures. To take advantage of the tax incentive, however, the property owner is limited to a deduction of up to 50 percent of his income each year toward that $800,000 total. If he makes $100,000 per year of adjusted gross income, that means he can deduct up to $50,000 annually. Assuming that he’s taxed at a rate of 25 percent, the 16-year total tax savings could be $200,000.
Prior to the new incentives established by Congress last year, a homeowner could only take a deduction for up to 30 percent of his or her income for six years.
And because a classification of “unbuildable” usually results in a dramatic drop in market value, Cape Cod towns will decrease the property tax assessment of a CR lot by 75 to 95 percent. (That percentage varies by town and is further dependent on how physically accessible the CR is.)
The process of establishing a CR can take up to six months, Robinson said, and he urged homeowners to initiate the process before summer. That’s because the current incentives only apply to transfers completed before the end of 2007, and it’s unknown whether Congress will extend the new income tax benefits beyond this year. (The Land Trust Alliance, a national cooperative of land trusts, will be lobbying hard this year to extend and expand the benefits, he said.)
Nearly 300 properties Cape-wide — more than 4,500 acres total — are currently under restriction. The average rate of CRs for each town on the Cape is about 1 per year, Robinson said.
Barbara Gray, who attended Saturday’s meeting, said she had recently established a conservation restriction on her Wellfleet property. Her experience was a good one, she said, and she encouraged other residents to think about establishing a CR.
In order to qualify for the CR designation, a parcel must meet federal criteria that establish its conservation value — that is, its natural resources and its potential for public benefit.
Robinson said that the cost of a CR — typically several thousand dollars, the bulk of which comes from appraiser’s fees — is usually recouped in the first year from income tax savings. However, he warned that because a CR is effective in perpetuity from the time the agreement is signed, property owners should think “very carefully” before going forward with the process.
For more information about conservation restrictions, contact Robinson of the Compact of Cape Cod Conservation Trusts at (508) 362-2565 or Dennis O’Connell of the Wellfleet Conservation Trust at (508) 349-2162.
esussman@provincetownbanner.com
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Feb 1st, 2007