Spring Island, SC
Thanks to a diverse national
coalition, the long-awaited extension of the Conservation Easement Incentive
was included in the 11th-hour Fiscal Cliff legislation grudgingly
passed by Congress late last year. The enhanced tax
deduction for land donation has helped America’s land trusts in working with a
range of landowners to increase the pace of conservation by one-third, to over
a million acres a year. While the extension of the Incentive through 2013 is
great news for landowners planning to take advantage of the tax benefits
associated with the donation of development rights on their lands, there is
often confusion and frustration in the process.
Enter Richard W. Dickinson -- development expert
and specialist in creative conservation strategies including Limited
Development, i.e., the utilization of easements and other conservation tools to
encourage the protection of significant open space. Dick is Founder and
President of North Carolina-based BenchMark Advisors,
established in 1995 after 23 years with internationally renowned Edward D.
Stone Jr. and Associates (EDSA).
BMB – Well Dick, we finally got
together on this and it only took an act of Congress, literally.
Dickinson – We have been talking about
showcasing this topic for some time. Considering the challenging economic
environment, it seems we’re right on schedule.
BMB – So – economics – that’s the
primary motivation for landowners?
Dickinson
- I like to think that it goes beyond economics. For many years now,
master-planned communities have considered planning for much less density than
they were entitled to build. In my view this was largely a marketing decision
with many buyers desiring more open space and a lower density product. Many
projects were designed for more open space to address this market expectation,
and went through the entire marketing and sales process without ever taking
advantage of the tax incentive offered by placement of a conservation easement.
BMB: Can you think of a contemporary
example?
Dickinson: Yes, I think the best example is Spring Island near Beaufort, South
Carolina. This was a project of Chaffin|Light, one of the preeminent master-planned community developers in
the US. It is a project encompassing 3,000 acres that was started in 1990.
Originally proposed for 5,500 housing units, the Chaffin|Light plan
envisioned much lower density with only 407 residential units and 1200 acres
being placed into a nature preserve. While they later placed a conservation
easement on the open space, the lower density plan was driven by their vision
of market demand.
BMB – And “landowners” – that’s a
pretty broad term. Who exactly
benefits from a Conservation Easement Incentive?
Dickinson -
We use the term “landowners” because the actual conservation easement incentive
accrues to the owner of the land at the time the easement is placed. There are
many wonderful examples of easements that have been placed to protect the land
and are not in any way tied to current or future development. One such example
is the Forbes
Ranch in Colorado where a philanthropist with a true interest in
conservation bought the ranch and placed more than 80,000 acres into
conservation.
BMB – So where does “Mr. Developer”
begin? The task appears
daunting. Briefly explain the
process, what it entails and what the ultimate outcome is.
Dickinson
- It is a complicated process for sure, and the IRS has placed many stipulations
on the placement of easements before they can qualify as a charitable
contribution. First of all, a conservation easement must meet the test of
conservation purpose. There are four areas defined by the IRS code:
Conservation Purposes: Under § 170(h)(4) and the Regulations, permitted
“conservation purposes” include:
- The
preservation of land areas for outdoor recreation by, or the education of, the
general public;
- The
protection of a relatively natural habitat of fish, wildlife, or plants, or
similar ecosystem;
- The
preservation of open space (including farmland or forest land) where such
preservation is for the scenic enjoyment of the general public or pursuant to a
clearly delineated Federal, State, or local governmental conservation policy,
and will yield a significant public benefit; and,
- The
preservation of an historically important land area or a certified historic
structure.
Then there is the issue of determining value. Most
often the value of the conservation easement is determined by appraisal. The
value difference between the “as of right” appraisal and the appraisal of
proposed limited development determines the value of the charitable contribution.
There
is also the requirement that the easement be held by a nonprofit entity
that exists for the purpose of holding lands for conservation. This entity is
responsible for the monitoring the easement to be sure the easement terms are
upheld. Most often, this entity is a qualified Land Trust with considerable
experience in monitoring conservation easements. While the land trust holds the conservation easement, the donor
is still owner of the land.
BMB - Can the concept be applied to
an existing project?
Dickinson
– If you mean, can the concept be applied to an existing master-planned
community, the answer is yes, but there are limitations on the amount that can
be claimed as a charitable deduction.
BMB: Limitations -- to what degree – or on
what conditions?
Dickinson:
The IRS distinguishes between an investor and a developer. An investor can
claim a charitable contribution at fair market value, while a property that is
under active development (inventory) can only claim a contribution at their
cost basis in the development.
BMB – Any examples of successes
you’ve worked on?
Dickinson –
Two that are particularly illustrative:
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