Amendment 4 Approved by Floridians

Voters in Florida overwhelmingly approved Amendment 4, The Florida Conservation Land Amendment, a measure that will lower property taxes on lands set aside for conservation. Amendment 4, which was  supported by Florida Governor Charlie Crist, was approved by 68.4 percent of Florida voters. A 60 percent majority was required. Read more

Property Tax Appeals on the Rise

Last week we took note of the great disparity in property tax rates from state to state with New Jersey levying an astounding $2,642 per citizen on the high end and Alabama charging its citizens an average of $477 by comparison. Now Investor’s Business Daily has taken that discussion a step further and singled out the rise in the number of property owners appealing their tax assessements. Read more

Lowest Property Taxes in U.S.? Alabama

Alabamans pay on average just $477 per person in property and real taxes. That’s one of the many conclusions of this 64-page background paper from the Washington-based Tax Foundation that was released earlier this month. But you already knew that because you read this post at LandReport.com on Alabama’s low tax rates several months ago. Guess which state finished at the bottom of the list?

Read more

Amendment 4 Would Cut Property Taxes for Florida Landowners

If you’re a registered voter in Florida and a landowner as well, there is an important amendment on this November’s ballot you need to be aware of. Amendment 4 could significantly reduce your tax liability, provided you set aside your land for conservation purposes. Read more

Tax Rules on Easements

With the increase in sale of easements for wind power or for recreational use, it is important to examine some of the rules and history of cases involving easements.

Editors Note: The following story appeared in the December 2006 issue of Farm and Ranch Tax Letter. For more information on Farm and Ranch Tax Letter see the end of the story.

The general rule concerning the treatment of easements may be found in Treasury Regulation
Section 1.61-6 (a) which states as follows:

The purchase price of an easement cannot be depreciated or amortized because an easement does not have a definite useful life.
“When a part of a larger property is sold, the cost or other basis of the entire property shall be equitably apportioned among the several parts. The realized gain or sustained loss on the part of the entire property sold is the difference between the selling price and the cost or other basis allocated to each part. The sale of each part is treated as a separate transaction, and the gain or loss shall be computed separately on each part. Therefore, gain or loss shall be determined at the time of sale of each part and not deferred until the disposal of the entire property has been disposed of.”

When there is a sale of an easement, there are two methods of allocating basis:

-The actual portion of the property affected by the easement.

-The rights created by the easement and the rest of the rights in the property.

If title to the land is retained, the payment for a permanent easement is applied against the basis of the land affected by the easement. If the payment exceeds the basis in the property, a taxable gain will be realized. However, Revenue Ruling 72-255 states that the entire basis in the property cannot be offset against the easement sale unless the entire tract is affected.

So, for example, Sam Farmer grants an easement that involves 2 acres of a 40-acre tract to an electrical utility company for $8,000. Sam purchased the entire 40-acre tract for $4,000 in 1952. Since only 2 acres of the tract were involved, the sale of the easement would essentially be the sale of the 2 acre tract. So, his basis for the purpose of calculating gain would be $ 200 ($4,000 purchase divided by the 40 acres in the tract times the 2 acres affected by the easement). Sam would recognize a $ 7,800 taxable gain to be reported in Part I, Form 4797 assuming the utility company.

Other Easement Issues:
The purchase price of an easement cannot be depreciated or amortized because an easement does not have a definite useful life. However, if the easement sold is only for a specific number of years, a deduction for amortization may be claimed by the individual purchasing the easement
Another type of basis allocation is between the rights retained by the taxpayer and the easement rights that are sold. This allocation can create a problem unless the easement covers the entire tract that holds the easement. Often an easement, such as a conservation easement, covers the entire property.

Two separate revenue rulings govern the allocation of cost basis:

Revenue Ruling 77-413 indicates that the basis in the property in question must be allocated between the interest sold and the interest retained based on the irrespective fair market value compared with the fair market value of the entire property.

Revenue Ruling 77-414 states that if it is impossible to allocate the basis between the interest that is sold and the bas is that is retained, then an amount received for the easement can be used to reduce the basis in the entire property.

More:

The Farm and Ranch Tax Letter is published monthly at a subscription rate of $49 per year. For subscription information or to receive one free copy contact frmandranchtaxletter@earthlink.net or send your adress to Ag Executive Inc., 115 East Twyman, Bushnell, IL 61422.

Note: As with all tax information, contact a qualified tax representative for more information.

Sale of the Forbes Trinchera Ranch

Land Report Editor Eric O’Keefe discusses one the biggest sales of 2007, the 171,000-acre Forbes Trinchera Ranch in Colorado to hedge fund manager Louis Bacon. Read more

What are the Tax Rules on Easements?

With the increase in sale of easements for wind power or for recreational use, it is important to examine some of the rules and history of cases involving easements. Read more

The Nature Conservancy Purchases 161,000 acres in New York

BY TREY GARRISON
PUBLISHED AUGUST 2007

The Nature Conservancy purchased 161,000 acres of Finch Paper Holdings forestlands in New York’s Adirondack Mountains. The $110 million deal, which works out to approximately $683 per acre, was announced on June 18 and includes a 20-year working forest agreement that will ensure the continued harvesting of timber on a large portion of the land and preserve approximately 850 jobs at the Glen Falls mill on the Upper Hudson River. Read more

Preserving Endangered Species for Profit

Who can save the Alabama red-bellied turtle? Maybe your accountant can. He or she will have a chance if Congress passes new legislation that would give tax breaks to landowners who act to preserve species like the Alabama red-bellied turtle, one of the creatures considered endangered by the U.S. Fish and Wildlife Service. Read more

Will Conservation Easement Tax Breaks Be Extended?

BY JOSEPH GUINTO
PUBLISHED MAY 2007

Act now or forever lose your easement. A tax break for conservation-related land donations-known as conservation easements-is about to expire. That is unless Congress does something about it.

The tax break, signed into law by President Bush in August 2006, vastly expanded the deductions landowners could get in exchange for donating their lands to trusts and surrendering the right to develop those lands. But unless the tax break is extended, it will only apply to lands donated in 2006 or 2007

Some landowner lobby groups are pushing hard for an extension, as are members of Congress, who note that the temporary tax deductions passed in 2006 added to the increasing popularity of conservation easements. The Land Trust Alliance, a Washington, D.C.-based interest group, reports that even before the new tax breaks went into effect, the total acreage of conservation easements under control of land trusts had skyrocketed. Acreage under easement increased 148 percent from 2000 to 2005, reaching 6.2 million acres at last count.

For landowners of moderate income, whom the 2006 bill was intended to help, a lot is at stake if the tax break is not extended. The government offers this example: Under the current law, if a rancher earning $50,000 a year on a ranch appraised at $2 million donated half his property to a conservation easement, he would be able to receive $800,000 in tax deductions over a maximum of 16 years. Once the law expires, the maximum tax break on the same donation would fall to $90,000 over a maximum of six years.

Numbers like that have inspired influential Democrats and Republicans in Congress to sponsor bills that would permanently extend the 2006 tax break.

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