Wouldn’t it be great to be able to reduce your property taxes? And also be able to get a sizable write-off on your federal taxes? And permanently protect your land at the same time? All while retaining full ownership of the protected land? Sounds too good to be true, but a number of Harvard residents have done this, and they and the town are reaping the rewards through more permanently protected land that will benefit wildlife and contribute to the town’s open space forever.
Here is how it works. Let’s take a real example, which happens to be the land that I now own. The prior owner had a lot that was slightly less than seven acres. The geometries of the lot and the road frontage meant that this lot could theoretically be subdivided into three house lots. The tax assessors in Harvard take that into consideration when they determine the value of the property, since the potential building lots increase the market value. This increased tax is something that you pay for, year after year, even if you never intend to subdivide the land.
Options for the landowner
Since the previous owner wished to see the land permanently protected, he had a couple of options. One was to donate a portion of his land to the town as conservation land. But if he did this, he would no longer own the property or be able to use it as he always had. Nor would he have control over what happened on it. So to retain ownership and control, he placed a conservation restriction on the property. The conservation restriction (CR), in this case, permanently preserves the open field and prohibits certain actions, such as subdividing the land, excavating, storing vehicles, etc. on the protected portion of the land.
To qualify, a CR must provide a number of basic protections. A CR is deeded, usually, to a land trust or other qualified government agency that is responsible for verifying that the restrictions on the property are being honored by the landowner. This usually involves an annual “monitoring” of the property for compliance with the conditions specified in the CR. In many cases in Harvard, the CR is held by the Harvard Conservation Trust, a nonprofit land trust whose mission includes preserving open space and protecting Harvard’s natural resources.
Tax benefits
The tax benefits of a CR (timely since it is tax season) are twofold. First is the reduced annual property tax. In the case of this land, the CR was placed on the property in 2007. At that time, the annual property tax bill was $9,028. The property was reassessed in 2009, and the property tax was reduced to $2,768. That is an annual savings of more than $6,000, and that savings will essentially continue in perpetuity. Over time, this savings is substantial.
But that isn’t the end of the tax benefit. Because the land is no longer subdividable, placing the restriction on the property reduced its overall market value. A qualified appraiser determined the market value of the property before and after the restriction, and that difference then becomes, in the eyes of the federal government, a charitable gift. (You are basically gifting the value that was lost by the encumbrance.) The value of the charitable contribution can be used to offset the owner’s adjusted gross income (AGI). According to the Land Trust Alliance’s website, newly enacted laws allow you to deduct the value of the gift by up to 50 percent of your AGI for restrictions held by a qualified conservation organization such as the Harvard Conservation Trust. Furthermore, any excess can be carried over up to 15 years. This tax benefit can be huge. If you fall into the 28 percent income tax bracket, for example, a $200,000 reduction in market value of the property would provide a tax benefit of $56,000.
Yet despite the fact that there is a CR on my property, I can still sell hay from the hayfield, plant a vegetable garden, have a wedding party, cut firewood, and more. It is still my land, my yard. There are some things I cannot do, such as put up another outbuilding, but that is just the way my restriction was written. The landowner decides on the conditions placed—the conditions just need to satisfy the state’s criteria for qualifying CRs.
A win, win, win, win
A CR can be a win, win, win, win. The town retains open space. You reduce your annual property tax bill. You get a large charitable gift deduction. You continue to own and retain use of your property.
There are some initial costs, however. There are the legal costs associated with writing and recording the deed restriction. The land trust that holds the restriction may request a small endowment to offset the costs associated with the overhead of managing and monitoring the conditions of the CR. There also should be “baseline documentation” developed by a professional that describes the condition of the land being protected. You will also need to have the land appraised by a qualified appraiser to determine the charitable gift amount.
Marc Sevigny is a member of the board of trustees of the Harvard Conservation Trust.
