Selling or Donating Conservation Land

Donating or selling land to a charitable organization is a very generous act. However, if the land has appreciated a great deal since you acquired it, an outright donation or below market sale (selling to a land trust for less than market value) may not be as big a financial sacrifice as you might expect.

Why Sell For Less Than Market Value?

Obviously, a sale at market value realizes full price for the owner. However, a market value sale leaves the seller fully liable for income taxes and capital gains taxes, and does not guarantee that the land will be protected from inappropriate development. Moreover, non-profit conservation organizations like the Chelan-Douglas Land Trust (CDLT) can rarely afford to pay full market value for a property.

In contrast, outright donations or below market sales of property to the CDLT can yield substantial income tax deductions and estate tax benefits for the donor or seller. You can also avoid the capital gains taxes that would result from selling the property at market value, eliminate your liability for property tax, and contribute to our environmental legacy. Below market sales of land are attractive to many people because they combine the income-producing benefits of a sale with the tax-reducing benefits of a donation.

What if I am Still Living on My Property?

Donations and below market sales may be done during your lifetime, or planned for in a Last Will and Testament to take place after death. Even if the property is conveyed during your lifetime, the transaction may be structured to allow you to continue to live on the land (remainder interest/reserved life estate), or to receive regular annuity payments (a "life income gift"). The Chelan-Douglas Land Trust will work with landowners to arrange a transaction that reflects the needs and objectives of the landowner, while preserving the conservation values of the property. We recommend that all landowners contemplating a gift or below market sale of property consult with independent legal and financial advisors.

Bargain Sales of Land to the Land Trust

Non-profit conservation organizations like the Chelan-Douglas Land Trust can rarely afford to pay full market value for a property. In cases where paying the fair market value of the property is not possible, a below market sale may bring the price down to one that the CDLT can afford. Below market sales to a qualified conservation organization such as the CDLT yield a potential income tax deduction equal to the difference between the sale price and the full fair market value of the property, and also lowers capital gains taxes. A below market sale to the Land Trust also reduces estate taxes and eliminates your liability for property taxes.

Donations of Land to the Land Trust

Donating land for conservation purposes may be the best conservation strategy if you do not wish to pass the land on to heirs, own property you no longer use, own highly appreciated property the sale of which would result in large capital gains taxes, wish to reduce estate tax, income tax, or property tax burdens, or would like to be relieved of the responsibility and expense of owning and managing land.

• Donation During Donor's Life
  In an outright land donation during the lifetime of the donor, title to the land is transferred to a land trust, resulting in an income tax deduction for the full appraised value of the land, avoidance of any capital gains taxes that would have resulted from selling the property, and elimination of the donor's liability for that parcel's property taxes. Depending on your financial situation, you may also be able to take advantage of reduced estate taxes.
• Donation by will
  A donation of property in a will is known as a donation by devise. Placing a donation of land or a donation of a conservation easement to the Land Trust in your will rather than making the donation during your lifetime means that you receive no income tax benefits from your gift, and you will continue to be liable for the property taxes. However, removing the value of the property from your estate could significantly reduce estate taxes. Heirs may also make donations within nine months of a testator's death in order to relieve the estate tax burden. Anyone considering a donation by devise should contact the Land Trust to ensure the Land Trust is willing and able to accept the property and manage it according to your wishes.
• Gift of Remainder Interest
  You can donate land and continue to live on it by donating a "remainder interest" in the property and retaining a "reserved life estate". With a reserved life estate, the deed to your property is transferred to the Land Trust during your lifetime (which may entitle you to income tax deductions, lowered estate taxes, and elimination of property taxes), but you reserve the right for yourself and any other named persons to continue to live on and use the property for the rest of your lives. However, the value of the real estate gift is reduced by the value of the reserved life estate, calculated according to IRS actuarial tables.
• Donations that provide an annuity payment
  "Life income gifts" are donations that are put into a trust so that the donor can receive regular payments for a period of years, or for the rest of his or her life. Life income gifts may be advantageous to someone who would like to donate highly appreciated property for conservation, but would also like to supplement his or her monthly income, perhaps for retirement. A life income gift makes the donor eligible to take advantage of reductions in income taxes and property taxes at the time of the gift, and to receive regular income from the value of the property. As in a life estate, the value of the real estate gift is reduced by the value of the life income, calculated according to IRS actuarial tables.