News rules five landowners cash options
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Changes to law increases oversight, allow tax credits to be sold for cash
6/27/2008 - 6/27/08
Have a spectacular scenic view, a productive farm or a historic site on your land? From five-acre farms to 30,000-acre ranches, landowners can turn land conservation easements into cash under new state rules that went into effect last week.Changes to the state's 2003 Land Conservation Incentives Act will prevent the kind of fraud that has prompted Internal Revenue Service audits by the hundreds in Colorado, according to advocates of land conservation easements.
Amendments to the law, sponsored last year by state Rep. Peter Wirth, D-Santa Fe, will boost the tax credit for donated easements from $100,000 to $250,000 per landowner and make the credits transferable. That means they can be sold for cash through a brokerage firm, a huge incentive to New Mexico landowners who are often land-rich and greenback-poor. "Farmers and ranchers generally don't need a tax credit; they need cash," said Cecilia Rosacker-McCord, a farmer and director of the Rio Grande Agricultural Land Trust.
Landowners can donate land-conservation easements for wildlife habitat, open space or cultural resources. In essence, the owner agrees to give up development rights forever in exchange for a state tax credit. For the next two years, the owner also can qualify for a federal tax deduction. Farmers and ranchers can use the easements to ensure that agricultural lands are kept in production. The easements benefit state residents in general by protecting open lands from being swallowed up by housing tracts and commercial buildings.
"To farmers, it seems incredible that they can get paid to continue doing what they're doing," said Daniel Claussen, conservation programs director for the Santa Fe Conservation Trust, which has helped secure easements on 30,000 acres of land in three counties. "For those who don't have tax liability, this is huge."
Santa Fe County Commissioner-elect Kathy Holian has two land conservation easements on two parcels she and her husband own in Glorieta Mesa. Both were approved under the old rules when their maximum state tax credit was $100,000 and nontransferable. Holian said they had a "very good experience with the Santa Fe Conservation Trust."
The Holians applied for the tax credit for the first easement four years ago for a 160-acre parcel. The state denied the credit, but the couple got the federal tax deduction. Their easement on a 320-acre parcel last year was approved by the state for the deduction. "The state is very strict. They make you do your homework" to establish the easement meets all the criteria, Holian said.
Easements are negotiable and can be tailored to a landowner's needs.
The Holians reserved a home site on each of their Glorieta Mesa parcels but made sure they were away from sensitive wildlife habitat.
The largest easement completed by the New Mexico Land Conservancy is the 30,000-acre Montosa Ranch east of Magdalena. Most of the land is now preserved as a working cattle ranch, but the owner retained the right to develop half a dozen small lots, according to Scott Wilber, the conservancy's executive director. "We have to look at each project on a case-by-case basis," he said.
The Land Conservancy also worked with the Village of Corrales to place easements on some five- and 10-acre farms that supply a popular farmers' market in the middle of the rapidly developing town.
New Mexico, Colorado and Virginia are the only states that offer tax incentives to conserve land. New Mexico had the benefit of learning from mistakes made in Colorado.
Colorado let landowners submit their own easements and appraisals directly to the state's taxation and revenue department, and claim the tax credit without review. The department became suspicious about the high value claimed for some barren, isolated parcels, according to tax attorney Ethan Epstein of the Modrall, Sperling, Roehl, Harris and Sisk law firm in Santa Fe. Allegations of fraud prompted an investigation by the IRS into hundreds of the land conservation easements.
New Mexico set up its program with more oversight. The LCIA tax credit is available only for easements that are reviewed by the New Mexico Natural Lands Protection Committee and certified by the energy, minerals and natural resources secretary as having significant conservation values.
The state Forestry Division administers the land conservation easement program. The new rules for the easements became effective June 16.
The tax credit is figured on 50 percent of the value of the land conservation easement, up to $250,000. But two people who own a ranch together can qualify for up to half a million dollars, since the credit is available to each landowner.
How much the credit will be worth if sold through a brokerage firm is anyone's guess. Epstein, who has an interest in the New Mexico Tax Credit Alliance brokerage firm, said the Colorado tax credits have sold for about 83 cents on the dollar. He said he expects about a dozen easements to qualify and be sold this year. "The price will be determined based on negotiations between sellers and buyers. The first ones will set the going price," Epstein said.
Rosacker-McCord said the Rio Grande Agricultural Land Trust expects to complete eight easement applications this year, more than twice the number when the tax credit was lower. She said a hang-up for many willing landowners is the $10,000 to $20,000 in upfront costs needed to complete the survey, appraisal and other legal documents for a conservation easement. "Most of us don't have that amount lying around," she said.
Rosacker-McCord said the trust is working with private foundations to set up a fund that will help landowners with the initial costs.
She said the tax credit could have a huge impact on the issue of water as well since farmers in a financial crunch too often are selling off water rights and the tax credit will give them another option for cash.
Holian said people with questions about conservation easements can call her at 995-9979.
Contact Staci Matlock at 470-9843 or smatlock@sfnewmexican.com.
Easement rules
New rules have gone into effect amending the state's Land Conservation Incentives Act to increase the maximum amount of the land conservation tax credit to $250,000 and to make the credit transferable for donations after Jan. 1, 2008. The law contains these provisions:
- Charitable donations of land or conservation easements to public or private conservation agencies are eligible for an LCIA tax credit.
- The maximum tax credit is 50 percent of the appraised value of the donation and a maximum of $250,000 per individual donor. A couple donating a conservation easement with an appraised value of $1,000,000 could receive a tax credit of $250,000 each, or $500,000 total.
- A taxpayer has a maximum of 20 years to use the tax credit.
- The credit may be transferred to another taxpayer through a broker in minimum increments of $10,000.
- The LCIA tax credit will be given only for donations that are reviewed by the state Natural Lands Protection Committee and certified by the secretary of the Energy, Minerals and Natural Resources Department.
- New LCIA rules let landowners apply for an EMNRD assessment of their proposed donation before donating the land or interest in land.
