Options for Private Landowners
This section is intended to provide an overview of the most
common techniques for voluntary land protection. It should not
be used as the only reference in making a decision. Landowners
are encouraged to seek guidance from a tax attorney or accountant
in order to determine the most suitable option. The Compact of
Cape Cod Conservation Trusts can identify attorneys, surveyors,
appraisers, accountants, and land planners familiar with local
GIFTS of LAND
Outright Donation (Fee Simple Transfer)
Giving the land to a non-profit conservation organization
or to a government agency is the simplest way to protect land.
It is only necessary to obtain acceptance from the agency or organization
to whom the land will be donated, prior to deeding the land. A
gift insures long-term protection of the land. The donor receives
tax benefits in the form of federal income tax deductions, potential
estate tax benefits, and relief from property taxes. The donor
is relieved of management responsibilities, and automatically absolved
of liability associated with any trail use.
About 80 percent of the properties preserved by land trusts
on Cape Cod were donated. About 30 parcels per year are donated
outright in this manner. Typically, the only cost to the land
donor is for an appraisal, which certifies the value of the donated
land for federal income tax deductions. Appraisals are needed
when the claimed value of the deduction is more than $5,000.
Land trusts usually ask donors to pay remaining property taxes
on the land before it becomes tax exempt in the next fiscal year.
Donation by Will (Bequest)
A gift of land made through a will entitles the donor
to retain full use of the land during his or her lifetime and assures
that it will be cared for in the future. It is advisable to discuss
the gift with the agency or organization prior to inclusion in
a will, to insure a plan for the care of the land. The donor is
responsible for real estate and income taxes for the property during
his or her lifetime. But removing the land from an estate will
reduce inheritance taxes.
Combined, Cape Cod land trusts typically acquire one property
per year via bequests. These properties tend to be large and
valuable, often part of a family's estate. In 1993, the Barnstable
Land Trust acquired a large coastal woodland fringed with salt
marsh through a bequest. The donation lowered the value of the
family estate by about $1 million, enabling the family to retain
most of the remaining land, rather than selling it for development
to pay high inheritance taxes.
Donation with a Reserved Life Estate
A donation with a reserved life estate may be made to
a government agency or conservation organization. The donor retains
the use of the land during his or her lifetime, and the lifetimes
of specified family members. A reserved life estate insures that
the land is protected in perpetuity, yet allows the donor to reside
on it and maintain the land. The tax advantages with a retained
life estate are less than those with an outright donation.
On Cape Cod, in 1993, a family donated five acres of dune and
salt marsh to the Truro Conservation Trust, while reserving the
right to use the parcel for family boating and beach bathing
during their lifetimes. The reserved right slightly lowered the
value of the land gift.
Gifts of Other Properties
Many conservation organizations and agencies will accept
a gift of property with little or no environmental value, sell
it on the open market (with restrictions, if appropriate), and
use the money for the preservation of other ecologically significant
lands. The landowner is eligible for the same tax benefits as a
gift of conservation land.
This option has been rarely used on Cape Cod. In 1988, the Brewster
Conservation Trust received a gift of title to a time-sharing
unit in a local condominium. The Trust sold the unit for $2,000
and put the money towards the purchase of the Windmill Meadows
parcel. The donor received a tax deduction for the value of the
SALE of LAND
Sale at Fair Market Value
Sale at fair market value is the sale of property at the
price a knowledgeable buyer would pay for the land. Most conservation
organizations are not able to purchase land at full value owing
to the high cost of land and insufficient funds. If the land is
sold at full value and has appreciated in value since its purchase,
the seller will be liable for income tax on the capital gain. This
can affect the net profit from the sale. There are no charitable
deductions associated with a sale at full value.
Many Cape Cod towns have purchased open space at fair market
value, owing to the intense competition for land during the development
boom. A land trust has almost never paid full value for land.
The Windmill Meadows purchase in Brewster for $145,000, at the
peak of a real estate boom of 1988, is one exception. The seller
realized no tax deductions.
Bargain or Charitable Sale
A bargain sale is part donation and part sale to a government
agency or non-profit organization. A bargain sale may entitle the
seller to an income tax deduction for a charitable contribution
and to a reduction in capital gains tax. The value of the income
tax charitable contribution for the seller equals the difference
between the fair market value and the lower negotiated selling
price for charity. The net cash to the seller at the bargain price
may approximate the fair market sale when the tax deduction is
taken into account.
Capital gains must be calculated on the sale part of the transaction.
A gain is recognized if the property is sold for more than its
basis (the basis is usually equal to the original cost, plus
improvements and minus depreciation). For bargain sales, the
basis of the property must be allocated proportionately between
the part sold and the part donated. The income tax charitable
deduction from a bargain sale could be greater than the capital
gains tax liability that results from the sale at fair market
In the 1990s, the Truro Conservation Trust purchased six acres
of beachfront land for $200,000; the Orenda Wildlife Land Trust
purchased 28 acres of land in Brewster at less than $5,000 per
acre; and the Chatham Conservation Foundation purchased 23 acres
along Goose Pond for $382,000. All of these purchases were paid
for through private fundraising. In each case, the seller received
substantial tax deductions for selling below full-value to a
An installment sale allows an agency or organization to
purchase property over a period of years. The use of the land and
the responsibility for payment of property taxes until the sale
is complete are negotiable terms of the agreement. The seller benefits
financially by spreading the income and the taxable gains over
several years. The amount of taxable gains depends on whether or
not the land is sold at fair market value.
The Bourne Conservation Trust has used this technique successfully
to buy many parcels. In a few cases, the sellers arranged financing
by "taking back " mortgages, enabling the land trust to raise
money and pay off the purchases over time.
RESTRICTIONS or EASEMENTS
A conservation restriction, also known as a conservation
easement, is a legally binding agreement between a landowner and
an agency or organization. The landowner retains title to the property,
but extinguishes certain development rights to the property.
Easements typically restrict dumping, mining, paving and development
of houses, while allowing traditional family uses of the property.
The restricted land can be sold, but the restriction runs with
the land to the new owner.
Tax authorities recognize the fact that the landowner has relinquished
a significant portion of the property's economic value by extinguishing
his or her right to develop the property to the fullest extent.
The Internal Revenue Service may grant income tax deductions
and estate tax reductions equal to the value of the land forgone
by donating a permanent conservation easement. The landowner
must conduct an appraisal of the extinguished value to justify
Lands with conservation easements are often granted local property
tax relief. Cape Cod towns typically offer a practice of property
tax reductions to landowners who place conservation easements
on their land. These reductions can be generous, ranging from
75 to 95 percent, reflecting the diminution in value caused by
extinguishing certain development rights. Some towns offer extra
tax reductions if public access, such as for trail use, is allowed.
Conservation easements have been used effectively on Cape Cod
to protect significant parcels of land. To date, more than 4,500
acres have been protected in this manner. Types of land that
have been protected by conservation easements include salt marshes,
barrier beaches, islands, dunes, pine barrens, shrub swamps,
meadows, pond shores, and freshwater streams.
About a dozen properties are preserved each year on the Cape
by conservation easement. A recent example on Cape Cod found
that 5.5 acres of buildable land were worth $295,000 before the
conservation easement was donated, and $85,000 after the restriction.
The landowner was entitled to a $210,000 charitable deduction
for income taxes and estate taxes. The town reduced the land's
assessment by 85 percent as well.
Deed restrictions guiding the future use of property may
be placed in the deed at the time the property is transferred.
Deed restrictions differ from conservation easements in that there
is not a third party that assumes responsibility for monitoring
and enforcing the restrictions placed on the land. The seller is
responsible for enforcing restrictions placed on a parcel of land
before it is sold. If the seller has placed restrictions in the
deed, and retains no land nearby, he or she may not be able to
enforce the restrictions against the subsequent owners of the land.
Under Massachusetts common law, most deed restrictions expire after
Deed restrictions will usually affect the market value of the
land if they significantly limit development potential. The presence
of a restriction may lower the price if the property is sold,
or lower the value of the gift if the land is donated to a conservation
agency. The IRS does not allow a claim for a loss in value resulting
from deed restrictions as a charitable deduction. A donation
of land to a conservation agency, in which the agency inserts
the deed restrictions, does allow a claim of the full fair market
value of the land as a charitable contribution.
Conditional Transfers and Reverter Clauses
A conditional transfer gives more force to a deed restriction.
The deed contains a clause which states that if the restrictions
entered in the deed are violated, title to the land will revert
automatically to the original landowner and heirs, or be transferred
to a conservation agency, depending on who would be in the best
position to protect the land and enforce the restrictions. The
owner can lose the title to his or her land if the restrictions
are not adhered to.
The lowered value of the land resulting from conditional transfers
may allow the landowner to claim the transfers as a charitable
deduction if they are donated to a qualified organization or
agency. Restrictions may reduce the value of a gift. A landowner
may choose to transfer land, prior to placing restrictions on
it to a qualified agency or organization that will place restrictions
on the land. The result is a maximum income tax deduction and
long-term protection of the land.
Options and Rights of First Refusal
A landowner may desire to sell his or her land to a conservation
organization or public agency that is not in the position to purchase
it immediately. The landowner can sell or grant an option to the
buyer that guarantees the opportunity to purchase the land in the
future. An option establishes a price at which the buyer could
purchase the land during a specified period of time.
A right of first refusal is less specific; it simply guarantees
the conservation organization or agency the opportunity to be
notified of the landowner's intent to sell. The potential buyer
may then make an offer. If another party offers an acceptable
price for the land, the organization/agency has the opportunity
at that time to match the price offered and purchase the land.
Both techniques provide legal means for a group to purchase land
at some time in the future although the group is not bound to
Instead of involving an agency, a mutual covenant involves
only the nearby or adjacent landowners who are interested in protecting
their land. The landowners enter into an agreement controlling
the future use of their land through restrictions agreed upon by
all participating landowners. Such agreements are permanent and
could be enforced by any of the landowners or future landowners.
Mutual covenants can reduce property taxes and estate taxes.
Leases are an alternative to permanent transfer of land
to a conservation agency or organization. A lease allows unrestricted
and exclusive use of the land for a given number of years. Restrictions
and provisions for termination of the lease can be incorporated.
The landowner can seek indemnification from liability if the land
is for public use. It is not possible to take a charitable deduction
for the value of a lease.
A management agreement is a legal contract between a landowner
and a conservation organization requiring the landowner to manage
the property in a specific way for a determined amount of time.
A management agreement is good for landowners who have already
been managing their land for conservation purposes. Frequently,
management agreements are voluntarily granted by landowners and
are designed to suit both parties.
(Information provided by The
Compact of Cape Cod Conservation Trusts)