Many people moved to Cherry Hills Village because of the open spaces. If you own land and you want to preserve the beauty of this open space we can help you understand your options. Most land protections fall into two categories. One is a Land Donation or Sale (a fee title transfer) to the Cherry Hills Land Preserve or another conservation entity. With such a transfer of title the conservation entity owns and maintains the land. The second option is to grant a Conservation Easement. With a Conservation Easement, the family continues to own and maintain the land but gives up the development rights.
With both options, there are numerous scenarios tailored to the family’s needs and desires that meet the goal of preserving open space. Both Land Donation and Conservation Easements provide tax strategies that will often allow a significant benefit. It is important to meet with an attorney and/or tax specialist to determine the exact tax benefit in each situation. The CHLP can help facilitate this meeting. Often the total value of the gift is tax deductible whether against income tax, capital gains or in an estate plan.
Conservation Tools Appropriate in CHV
Some or all of the following tools might be appropriate to landowners in CHV. With each of the tools listed below, the land owner does not need to provide public access and except for the fact that certain rights to use of the land have been limited by the terms of the easement, the land owner negotiates the limitations and continues to own, use and manage the property.
Owner Retains Control Over Property
Limited or Protected Development. Because of the high cost of land in CHV “protective” or limited development allows for controlled development of a portion of the property in exchange for the protection of the remainder. The undeveloped portion could be placed in a conservation easement. The reserved development sites are located so as not to interfere with the wildlife habitat, scenic and other resource values. The value of the limited development sites is enhanced by the permanent protection of the adjacent lands. The City Council could be asked to allow for smaller lot sizes given the open space protection plan. Through this approach the economic objectives of the landowner can begin to be met through the sale of a few sensitively located, but valuable residential lots.
- Purchase of a Conservation Easement. Conservation easements are voluntary and permanent agreements whereby a landowner relinquishes certain property rights for specific conservation purposes. The easement carries forward to any subsequent owner of the land. Conservation easements are flexible and can limit development as much as the land owner desires. The value of the easement depends upon the size and limitations on property. An independent appraiser would set the value of the easement based on the development value of the land prior to the easement and then after the property is encumbered with the easement.
- Donation of a Conservation Easement. These easements can be donated to a Land Trust or government for charitable income tax deductions against the owner’s federal income tax return. In Colorado, the donation also creates a tax credit against Colorado income tax. Until 2015, the maximum Colorado tax credit was $375,000 for a $750,000 donation. In 2015, Governor Hickenlooper signed Senate Bill 206 which provides up to $1.5 million in State tax credits to landowners who protect their land with a conservation easement. The bill now provides a State tax credit equal to 75% of the first $100,000 of the fair market value of the easement and 50% of the value above that amount up to a total credit of $1.5 million. Any portion of the tax credit not used in the year of the gift may be carried forward and used to offset Colorado income taxes for up to 20 more years. In addition, the easement can lower the value of the land for estate tax purposes and may qualify for a partial exclusion from estate tax.
Acquisition of Title
In addition to the direct cash purchase at fair market value there are many creative land purchase options that can fulfill the landowner objectives and conservation interests. These creative approaches to land purchases are listed below:
- Installment Purchase—An installment purchase is spread over a term of years to benefit both the seller and the purchaser. An interest rate is built into each installment payment and if sold to a public entity that interest may be tax exempt.
- Lease-Option—With a lease-option agreement the governmental entity leases a property for a period of time with an option to purchase the property during or at the end of the term of the lease. Such an arrangement would permit the governmental entity time to determine property management, uses and financing.
- Rolling Option—Rolling options allow the purchaser to buy sections of a property over a period of years. Rolling options are often used by public entities that do not have the funds to purchase the entire property at one time and yet can rely on an annual appropriation for a portion of the sale price. Generally, the least desirable portion of the property is sold first so there is incentive for the public entity to complete the full purchase once the rolling option period begins.
- Right of First Refusal—Common in real estate transactions, with this tool the landowner agrees to inform the public, or nonprofit, entity of their intention to sell a property to another party, but the public entity is allowed to match the best offer. This right of first refusal does not bind the public entity to purchase but does provide that opportunity.
- Bridge Financing/Land Trust—Many land trusts, such as Colorado Conservation and Trust for Public Land, acquire lands for public entities and then resell to the public agency on terms that are beneficial to the public. A benefit is that land trusts can often act much more quickly if an owner must sell a property in a short time frame.
- Donation or Gift—For certain land owners the charitable donation of land to a conservation entity is attractive for tax, family and estate planning reasons.
- Bargain Sale—A bargain sale is a combination of gift and sale of a property to a conservation or governmental entity. The land owner receives the benefit of both cash income and a charitable gift deduction for the difference between fair market value and the bargain price.
- Donation with Reserved Life Estate—This structure has been used successfully in preserving Qunicy Farms in Cherry Hills Village. The landowner wishes to donate the land but retain the use of all or part of it during their lifetime or the lifetime of the immediate family.
- Charitable Gift Annuity or Charitable Remainder Trust—Landowners may wish to donate their property in return for an annuity or fixed payment instead of a cash sale. This arrangement may have significant tax benefits to landowners who have held property for long periods and can be an effective estate planning tool.