Don’t Let The Government Take Your Land Instead Donate It

Now the title of this article might get some folks riled up.  There is a process called “eminent domain” where the government can end up taking some or all your land.  Usually for roads, but sometimes for utility access, conservation, wildlife habitat, etc.

When the government condemns your land under the eminent domain process, you get paid the fair market value of the land.  Then, you might end up having to pay capital gains tax depending on your cost basis.

There is a tax strategy out there as an alternative to be considered.  Kind of based on the old, “You can’t fire me, I quit!” scenario.

If the purpose of the eminent domain qualifies, donate the land as a “conservation easement” to the government.  What’s even better, in this particular arrangement, you still technically get to own the land.

The idea is to arrange a donation of a “conservation easement.”  If certain requirements are met, you can deduct the value of the easement property as a charitable donation even though ownership stays in your family.

To accomplish this, the easement must be supported by independent appraisals.

Better yet, it doesn’t have to just be the government you’re giving your land to.  It can be a publicly supported charity or organization controlled by and operated for the exclusive benefit of a government unit or public charity.  Unlike most other charitable gifts of property, the deduction is available if you retain ownership of the property.  The gift must be irrevocable.

The purpose of the easement must be for one or more of the following:  1)Preservation of land for outdoor recreation or education of the general public.  2)Protection of a natural habitat of fish, wildlife, plants or a similar ecosystem.  3)Preservation of a historically significant structure.  4)Preservation of open space either for the scenic enjoyment of the public or pursuant to a government conservation.  Notice that using the land for roads or utility access isn’t on that list. 

Now, the American way is to find a way to profit on something like this.  And some folks have figured out how to create partnerships operating as limited liability companies that take ownership of the land, then donate it under this arrangement, creating tax deductions for its owners.  The Tax Court has ruled this to be allowable, but the valuations must be backed up by sales data of similar land or it could be thrown out.

One last item.  Donations of conservation easements are deductible up to 60% of adjusted gross income (AGI).  Ranchers and Farmers get an even better amount, 100% of AGI.  Any unused amount can be carried forward for up to 15 years.

Have you heard? Prov 18:16 says, “A man’s gift makes room for him, and brings him before great men.”

Kelly Bullis is a Certified Public Accountant in Carson City.  Contact him at 775-882-4459.  As well as on our website at BullisAndCo.com. You can also find us on LinkedIn and Facebook.