Donating or selling land to a charitable organization is a generous act creating a legacy for your family and the community. If the land has appreciated a great deal since you acquired it, an outright donation or below market (“bargain sale” for less than market value) may not be as big a financial sacrifice as you might expect. In fact, both bargain sales and donations can have substantial financial benefits.
Bargain Sale - Why Sell For Less Than Market Value?
Obviously, a sale at market value realizes full price for the owner. However, the seller is typically liable for income taxes and capital gains taxes. In contrast, an outright donation or bargain sale of property to CDLT can yield substantial income tax deductions and estate tax benefits for the donor or seller, while contributing to your 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. Moreover, non-profit conservation organizations like the Chelan-Douglas Land Trust (CDLT) have to secure grant funding for most purchases, and grants require matching funds from other sources. The value of the bargain sale donation often satisfies the match requirement.
We recommend that all landowners contemplating a gift or below market sale of property consult with independent legal and financial advisors.
Donations of Land to the Land Trust
Donating land for conservation purposes may be the best conservation strategy in several circumstances, for example: 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 support the Land Trust by gifting property for resale by the Land trust to a conservation buyer. 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.
Donation During Donor's Life
In an outright land donation during the lifetime of the donor, title to the land is transferred to the 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.
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. 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.
What if I am Still Living on My Property? - 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. 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.