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By Jim Miller, Conservation Committee Chair
The Ten Mile Lake Association acquired two parcels of shoreline in Lundstrom’s Bay on December 28, 2012 from Becky and Tim Lyng and their two sons for $190,000. The parcels purchased totals approximately 30 acres and 2,100 feet of shoreline. As part of the transaction, the Lyng family agreed to have a Conservation Easement placed on the approximately 900 feet of shoreline they retained which contains the following restrictions:
In addition, the TMLA was given a right of first refusal to acquire the retained parcel in the event the Lyngs wanted to sell the property.
The TMLA purchased parcels will be added to the conservation easements on the current parcels owned and will be held by Minnesota Land Trust.
For more details including a map of the protected area you can go to the Conservation Committee report regarding this transaction on the TMLA website.
The Conservation Committee wants to thank the following for all their help in making protecting 3,000 feet of Lundstrom’s Bay possible:
Our thanks also go out to the Dick Garbisch family for allowing TMLA to use the accrued interest from the Garbisch Conservation Fund to partially fund the Lundstrom purchase and to all those who have contributed to the Jim Schwartz Environmental Protection Fund which funded the balance of the purchase price.
THE CONSERVATION COMMITTEE AND ADVISORY COMMITTEE PLAN TO HAVE A CONSERVATION FUNDRAISER THIS SUMMER TO RAISE FUNDS TO REPLENISH APPROXIMATELY $175,000 TO THE JIM SCHWARTZ ENVIRONMENTAL PROTECTION FUND. PLEASE CONTACT ME IF YOU AND/OR YOUR FAMILY WOULD LIKE TO BE A LEAD CONTRIBUTOR TO OUR FUNDRAISER AT 218-547-3337 OR 612-868-4838.
Have a great spring and summer at Ten Mile Lake!
Federal legislation enacted in December 2012 extended expired tax incentives for eligible conservation easements charitable donations through December 31, 2013. To qualify for the incentive, the conservation easement must meet all requirements of IRS Code 170(h)(2) and the easement must be completed and recorded to the land deed by December 31, 2013.
Congress has continued to allow enhanced charitable contribution deductions associated with conservation easements. A qualified conservation easement allows a taxpayer to claim a charitable deduction for a permanent easement restriction placed on real estate, while retaining full ownership and use of that real estate. Typically, a lakeshore easement would permanently restrict any future development of the property, but allows the property owner to retain possession, ownership and use of that property.
The diminished market value of the property from the permanent easement is treated as a charitable contribution. This charitable contribution is limited to 50% of the taxpayer’s annual income, with the excess being allowed as a carryforward to future tax returns for 15 years [IRC Sec. 170(b)(I)(E) and 170(h)].
The diminished market value of the property may qualify for reduced real estate taxes, if the easement has water quality benefits. If the owner is exposed to federal or state estate taxes, the reduced property value from the permanent easement will decrease those taxes.
A good Ole and Lena example regarding the opportunities involved in conservation easements is contained in the original article, below. Here is an abbreviated version of that example:
Cass County Environmental Services Department, in collaboration with the Leech Lake Area Watershed Foundation, has received a legislative appropriation of $300,000 from the Minnesota Environment and Natural Resources Trust Fund to provide financial assistance to shoreland property owners of sensitive shoreland who are willing to donate a perpetual conservation easement on their property. Ten Mile is among the 18 Cass County lakes identified through the DNR Sensitive Shoreland study as a high priority for the project. Sensitive shorelands are areas of unique ecological significance for fish and wildlife habitat.
A conservation easement is a legal restriction on a property that permanently limits development in order to protect natural resources. The project will fund the closing costs on 12-15 donated easements, with priority given to properties that are largely undeveloped and fall within designated sensitive shoreland areas. By limiting development, water quality and important fish and wildlife habitat is protected. Landowners who place permanent easements on their properties retain ownership and use of their properties while the development rights are held by a qualified entity, which will be either Cass County or the Minnesota Land Trust per the landowner’s preference. If the property is sold or inherited, the easement passes on to the future owners to insure permanent protection of the resources. If desired, the landowner can set aside future building sites or uses in the easement.
The project grants will provide a willing landowner with financial incentive (approximately $15,000 per easement) to put the easement in place. This would cover costs for appraisals, land surveys, legal reviews, documentation of conservation values, and other associated costs. Conservation easements usually qualify for an IRS charitable deduction. Every easement is individually tailored to the landowner’s conservation interests.
For more information on participating, contact John Sumption, land conservation specialist with the Leech Lake Area Watershed Foundation, at 218-363-2942 or firstname.lastname@example.org. Or, contact Cass County Environmental Services at 218-547-7256, or any of the members of our Conservation Committee listed above.
UPDATE FROM 2012 SPRING ISSUE OF THE TMLA NEWSLETTER (by Jim Miller):
As chair of the TMLA conversation committee, I want to lead by example and practice what I preach. All of our shoreline in Flower Pot Bay was improved under Shoreline Restoration Program in 2011 and now Pat and I are putting a conservation easement on 2.77 acres and 240 feet of our shoreline to take advantage of this grant opportunity.
Over 200 feet of this protected shoreline is in Flower Pot Bay, an environmentally sensitive area on Ten Mile. Our family has enjoyed coming to a small lagoon in the wetlands area covered in easement by a walking trail, by canoe or kayaks. The lagoon is a quiet protected area with ducks, fish, turtles, birds, frogs and other wild life. Our family is in 100% agreement about protecting all of the easement area in perpetuity so future generations can continue to enjoy the area as much as our family has for the past 35 years.
Congress has continued to allow enhanced charitable contribution deductions associated with conservation easements. A qualified conservation easement allows a taxpayer to claim a charitable deduction for a permanent easement restriction placed on their real estate, while retaining full ownership and use of that real estate. Typically, a lakeshore easement would permanently restrict any future development of the property, but allows the property owner to retain possession, ownership and use of that property.
The diminished market value of the property from the permanent easement is treated as a charitable contribution. This charitable contribution is limited to 50% of the taxpayer’s annual income, with the excess being allowed as a carryforward to future tax returns for 15 years [IRC Sec. 170(b)(I)(E) and 170h].
Ole and Lena own 300 feet of lakeshore on Ten Mile Lake. Their cabin occupies approximately 100 feet of lakeshore, but the remaining 200 feet of lakeshore consists of undeveloped frontage and woodland. Ole and Lena desire to create an arrangement where that 200 feet of undeveloped lakeshore is permanently restricted from any future development, both in order to preserve the privacy of their cabin property and to continue the preservation of the lakeshore and the conservation status of this property.
Ole and Lena enter into a conservation easement, working with the Ten Mile Lake Association and the Minnesota Land Trust, a qualified charity. This easement permanently restricts the 200 feet of undeveloped property from any future construction or development, assuring that it remains in its present condition in perpetuity. However, Ole and Lena continue to have full ownership and exclusive use of that property, as occurred previously.
To measure their charitable deduction, Ole and Lena secure two appraisals: An appraisal of the 200 frontage feet of property and accompanying woodland as is (based on its development potential) and a second appraisal after placement of the easement restriction. Assume that the property appraises at $500,000 if capable of development, but only appraises at $300,000 of market value with the permanent easement that restricts any future development. These appraisals indicate that Ole and Lena’s conservation easement has diminished the market value of this parcel of land by $200,000. This $200,000 represents their allowable income tax charitable deduction.
Assume further that Ole and Lena’s annual Form 1040 adjusted gross income is $100,000. They are entitled to claim up to $50,000 (50% of adjusted gross income) of charitable income tax deduction annually from this easement. Accordingly, it will take them approximately four years to fully deduct the charitable contribution (4 years at $50,000 of charitable deduction per year = $200,000). Assuming that Ole and Lena are in a combined 30% federal and Minnesota tax bracket each year, the annual $50,000 charitable deduction from the conservation easement will save them $15,000 of federal and state income taxes per year. Over the entire four years of claiming the charitable deduction, they will save $60,000 in total taxes ($200,000 total charitable contribution x 30%).
It is also possible that Ole and Lena may qualify for reduced real estate taxes to Cass County, because of the diminished value of their property. Finally, if Ole and Lena are exposed to federal or state estate taxes, the reduced property value from the permanent easement will decrease those taxes.