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Farm Development Rights - Sold or Transferred.

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  • Farm Development Rights - Sold or Transferred.

    Has anyone here sold or transferred the development right on their farm?

  • #2
    We have a strict conservation easement on the lion's share of our farm-98 out of 140 acres. The development rights are held by a land trust. We donated the rights to the trust.

    I love riding through those beautiful woods and knowing they will always be safe from bulldozers.

    Comment


    • #3
      Development rights

      We did the same thing. Feels really good. Also donated a trail easement around the perimeter for walking and riding across our place between two big conservation areas.

      Get a good attorney with experience in tdr/sale of easements - the Land Trust Alliance website is a good resource. www.lta.org -- to advise you. Get a good appraisal of the value of your development rights. What you cannot get paid you may be able to take as a charitable deduction.

      Comment


      • #4
        We did too. I am making land conservation my specialty in a way. What do you want to know?
        https://www.facebook.com/SugarMapleFarm
        Follow us on Instagram: https://www.instagram.com/peonyvodka/
        www.PeonyVodka.com

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        • Original Poster

          #5
          In my area there are several different programs that buy your developement rights. They pay you a set amount per acre. I think it's a wonderful program for the state and the farm owner.

          My concern is actually capital gains. Will I even be responsible for CG? I don't know if I need to find a good accountant, tax attorney or what?

          Comment


          • #6
            I hope to hear more about this on this thread... we have the opportunity to buy a large tract adjacent to our land and would have to do some seriously creative financing to make it happen. Maybe this is the way?
            "Kindness is free" ~ Eurofoal
            ---
            The CoTH CYA - please consult w/your veterinarian under any and all circumstances.

            Comment


            • #7
              Originally posted by EqTrainer View Post
              I hope to hear more about this on this thread... we have the opportunity to buy a large tract adjacent to our land and would have to do some seriously creative financing to make it happen. Maybe this is the way?
              For seriously creative financing, I would suggest the SBA - I think it's the 504 program (can't remember for sure). That is how we bought our farm.

              Comment


              • #8
                Originally posted by SCF01 View Post
                In my area there are several different programs that buy your developement rights. They pay you a set amount per acre. I think it's a wonderful program for the state and the farm owner.

                My concern is actually capital gains. Will I even be responsible for CG? I don't know if I need to find a good accountant, tax attorney or what?
                If you sell something and make a profit you'll owe the Tax Man. If you make a bunch you'll owe a bunch.

                Given what's about to happen to the Tax Code, I'd take all the profit you can this year; next year's gonna be a bitch if if our current Fearless Leader gets his way.

                G.
                Mangalarga Marchador: Uma Raça, Uma Paixão

                Comment


                • #9
                  Originally posted by EqTrainer View Post
                  I hope to hear more about this on this thread... we have the opportunity to buy a large tract adjacent to our land and would have to do some seriously creative financing to make it happen. Maybe this is the way?
                  "Seriously creative financing" has been at the root of much of our current economic distress. It's also the cause of lots of bankruptcies and forclosures.

                  Don't allow your reach to exceed your grasp.

                  G.
                  Mangalarga Marchador: Uma Raça, Uma Paixão

                  Comment

                  • Original Poster

                    #10
                    Originally posted by Guilherme View Post
                    If you sell something and make a profit you'll owe the Tax Man. If you make a bunch you'll owe a bunch.

                    Given what's about to happen to the Tax Code, I'd take all the profit you can this year; next year's gonna be a bitch if if our current Fearless Leader gets his way.

                    G.
                    I know there are ways around this. That's how the rich stay rich. What about "like-kind exchange?" I believe that's one way.

                    Comment


                    • #11
                      Originally posted by Guilherme View Post
                      "Seriously creative financing" has been at the root of much of our current economic distress. It's also the cause of lots of bankruptcies and forclosures.

                      Don't allow your reach to exceed your grasp.

                      G.
                      thanks for the financial advice. Considering we don't have car payments, credit card debt or live beyond our means, you might want to save the rhetoric about our current economic stress for those who need to hear it.

                      When land values drop, it's an opportunity IMO. *Due* to the economic distress and my friendly neighbors wish to move from the country to the city, this could potentially be the smartest investment we could make from many angles - one of which being that I would never have a subdivision right across the street from my farm I would appreciate hearing more about transferring development rights, as we would want to ensure that this land was never developed in the future.

                      As my grandfather always told me.. they aren't making any more land.
                      "Kindness is free" ~ Eurofoal
                      ---
                      The CoTH CYA - please consult w/your veterinarian under any and all circumstances.

                      Comment


                      • #12
                        All I know is a bit of a soap opera.

                        A man owned a cattle ranch attached to Fair Hill National Park (property values skyrocket right next to this over 5K acre park, due to encroaching suburbia). His land totals 100 acres. Not sure if he did this before or after he was married, but he 'sold the development rights' to the state.

                        What happened was that the state (or county - not sure which) gave him, say $500K for the property (not sure the exact price). With that $500K, the governing bodies assure that the property will never be sold for development - they limit what buildings can be built on the property.

                        Fast forward - the man is married to a woman at least 10 years his junior, who apparently married him for 'money' (more likely the money his land could get). He ends up in a nursing home and she wants to sell the property.

                        So, the appraiser comes and appraises the property at 1.2 million. Well, they already got $500K for it, so they can only sell it for $700K. This AND the government stated that you cannot put any more structures on the property.

                        It is great in that it will never be developed, but bad for the owners because they have one falling down barn and a shabby farmhouse. So it is not even appealing to farm people.

                        Take this with a grain of salt because most of what I know is from a friend who was thinking of buying the place, but a: they could not get what they wanted for their property (15 year old custom home in great condition, pool, sauna, four horse bank barn, 8 acres of field, nice flat arena with a shed and opening to more field, plus some acres of land) and b: she was having trouble convincing her husband to go from the above, beautiful place to a new place they would have to spend time and money to fix up.

                        My only, long and meandering point it - to protect yourself, make sure you talk to the government/representing body to make sure your property will be 'sellable' in the future (ie - make sure the future buyers don't have to live in a shabby farmhouse).

                        On a side note - the DuPonts donated Fair Hill to the state of Maryland with the caveat that it can NEVER be developed....so you can go that route also. Though probably easier to do when you have thousands of acres that can be turned into a state park.

                        Comment


                        • #13
                          Originally posted by SCF01 View Post
                          Has anyone here sold or transferred the development right on their farm?
                          I used to do this type of conservation work for a living. There are pros and cons, tax implications, estate tax implications, etc. Not a decision to be entered into lightly.

                          If you are considering any type of restriction on your land, it would be a good idea to seek QUALIFIED legal counsel as well as the services of an accountant. When I write "qualified', I mean that this is not advice for which you would seek out advice from just any run of the mill attorney. This is a speciality. Seek guidance from an attorney specializing in estate tax planning and/or a true agribusiness attorney.

                          Some localities have PDR programs now, that will pay you for the development rights. (this is only one type of right you have - you also have timber rights, water rights, mineral rights, etc.)

                          You may also sell or donate a conservation easement.

                          You may also enter into a short term restriction of your land that has fewer financial implications but does protect the land and reduce your tax rate.

                          Your choices will depend upon your personal financial situation, as any choice you make will have far reaching consequences. You will also want to consider what the land use plans are for other parcels in the area.

                          For example, you will not want to run into a situation where all the land around you is developed - but your land is devalued because it cannot be developed. So your neighbors reap the benefit of their land having a "view". Their land is worth more - your land becomes devalued - but your tax rate may be high even with restrictions on development.

                          Some agreements (usually involving soil and water conservation districts or other programs) require the landowner to enter into a short term restriction (maybe about 10 years). The landowner does not have to worry about devaluing the land - but it is still protected from development and may encourage other landowners to do the same. The tax issues are much different as well.

                          You may want to look into whether or not your land is within an ag and forestal district. If not, perhaps you can start one. Again - very simple - protects the land, has pros and cons regarding taxes/financial implications - but isn't permanent in nature. (Long-term temporary is more like it)

                          These programs are very simple in that the agreement entered into is a very easy transaction. However, to be truly fruitful for the landowner as well as the public you'll need to put this idea into context with your personal financial plan as well as your estate plans - as well as what is going on with land use plans for the general area.

                          If you have specific questions I'd be happy to answer them privately, and I would also be happy to direct you to websites that may help educate you on the pros and cons.

                          What no one wants to happen is that a landowner permanently restricts his land and then years later - needs money for a nursing home or medical bills, or gets divorced or has some other tragedy - and is screwed. Or another situation in which you have devalued your land and it's become a small island surrounded by development that is high value, has a "view" (your land) but you have derived no benefit and are stuck. (nature doesn't benefit either as it becomes a closed ecosystem and genetic diversity and habitat suffers)

                          Hope that helps. Good luck!
                          Brothers and sisters, I bid you beware
                          Of giving your heart to a dog to tear.
                          -Rudyard Kipling

                          Comment


                          • #14
                            Originally posted by SCF01 View Post
                            I know there are ways around this. That's how the rich stay rich. What about "like-kind exchange?" I believe that's one way.
                            Like Kind Exchanges can be done ONLY with business use property. IF you have a farm that is used for business, then you could exchange it for another piece of real estate ... that would also HAVE TO BE USED FOR BUSINESS. You can exchange real estate for real estate - a farm for a rental apartment complex, for example, or a beach property rental for a piece of bare land where you can erect a commercial building. You cannot exchange "unlike" things such as a farm for an expensive race horse.

                            If you want to put the property to personal use (the property you took in trade), you can (maybe) after a couple of years of actual business use. I think that is still a murky point in the law.

                            Like kind exchanges DELAY capital gains tax ... not end capital gains tax. Eventually, you will still have to pay capital gains; you just put it off until you are finished with a series to trades.

                            Comment

                            • Original Poster

                              #15
                              Originally posted by Evalee Hunter View Post
                              Like Kind Exchanges can be done ONLY with business use property. IF you have a farm that is used for business, then you could exchange it for another piece of real estate ... that would also HAVE TO BE USED FOR BUSINESS. You can exchange real estate for real estate - a farm for a rental apartment complex, for example, or a beach property rental for a piece of bare land where you can erect a commercial building. You cannot exchange "unlike" things such as a farm for an expensive race horse.

                              If you want to put the property to personal use (the property you took in trade), you can (maybe) after a couple of years of actual business use. I think that is still a murky point in the law.

                              Like kind exchanges DELAY capital gains tax ... not end capital gains tax. Eventually, you will still have to pay capital gains; you just put it off until you are finished with a series to trades.
                              Oh darn. I thought it was just real property for real property. Didn't know it had to be a business.
                              So the 15% capitol gains would probably apply.

                              Comment


                              • #16
                                This website might be helpful. They have information by state.
                                http://www.elcr.org/index.php
                                Comprehensive Equestrian Site Planning and Facility Design
                                www.lynnlongplanninganddesign.com

                                Comment


                                • #17
                                  Wow. JSwan really knows her stuff!

                                  As for creative financing, it is a long shot but if the stars align correctly you could do something like this: the seller sells the land to a land trust for a bargain sale price (for example, the land is worth $1m but they sell it to the Trust for $500,000 and get a $500,000 charitable donation tax deduction). The land trust puts conservation easements on the land and then sells it to you for the market price -- presumably at least the $500,000 they had to spend to buy the land.

                                  THis obviously only works if there is a land trust, the seller wants to protect the land and can use the tax break etc etc.

                                  CAn you use a tax break? If your income is high, and you put conservation easements on your land you can deduct the value of the easement you donated for I think 5 years. So if the easement is worth $500,000 you could deduct $100,000 from I think your income (this is where JSwan's advice to seek a qualified attorney is right on!) for the next five years.

                                  It is complicated but worth it. And it should be noted if you donate an easement, or even if you sell development rights, you don't have to completely restrict the property. You could keep back a building lot or two for example.
                                  https://www.facebook.com/SugarMapleFarm
                                  Follow us on Instagram: https://www.instagram.com/peonyvodka/
                                  www.PeonyVodka.com

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                                  • #18
                                    Transfer of development rights is only available in a few areas. How they are run, whether you can actually find a buyer and the price are different in different areas, also. For example, when I worked for a county in Maryland, you could sell the amount of housing units allowed by zoning on the property, and they were going for about $3,000 per house.

                                    Comment


                                    • #19
                                      Originally posted by Ajierene View Post
                                      All I know is a bit of a soap opera.


                                      So, the appraiser comes and appraises the property at 1.2 million. Well, they already got $500K for it, so they can only sell it for $700K. This AND the government stated that you cannot put any more structures on the property.
                                      This actually is NOT how easements (or sale of development rights) work. If the farmer sold his development rights 10 years ago, and the property - with the restrictions - is worth $1.2M today, then you could theoretically sell the property for $1.2M. Just because you got $500K for it 10 years ago doesn't mean you MUST sell it for that much less today. The easement protected property continues to appreciate along with all other property in the area, however it may be worth less than a similar, comparable farm which still has all of its development rights. If you look at the Middleburg area, people who put their land in easement 15 years ago, can still receive very good prices for their land. If you are in a developing area, I tell landowners that while you may need to wait a little while to find the right buyer who wants your protected property, those people ARE out there for sellers. Big, intact farms are getting scarcer and scarcer as the years go buy. In some places, people pay a premium for large properties.

                                      I also have to say that it is HIGHLY unlikely that an easement would prevent the rehabilitation of a farmhouse. It may limit you to one or two houses on the whole property, and it may tell you how big those houses (or barns) can be, but as someone who works in this field for a living (land conservation, that is), I can tell you for certain that we're not trying to force people to live in substandard conditions!
                                      Here Be Dragons: My blog about venturing beyond the lower levels as a dressage amateur.

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                                      • #20
                                        I'll pop in to offer a few thoughts for people who are not overly familiar with conservation/preservation methods.

                                        First, these are not "all or nothing" propositions. The landowner is the one in charge, here. It's your land. You don't have to do anything you don't want to do.

                                        What you donate or sell and what the contract limits is mostly up to you. But anyone interested in these programs really should have independent counsel and also seek the services of a good CPA. You may negotiate to have all development rights purchased - or retain the ability to put up one or two houses.

                                        Reserving some rights is often done with landowners who have adult children they'd like to live on the family farm.

                                        You do not have to sell your land for a certain price. You are free to sell your land for as much as the market will bear. Easements do not always lower the value of the land. It usually does - but it can also provide some assurances to purchasers that they will not be taken over by townhouses 3 years after moving into an area. But a person who is buying land for investment purposes should probably not take advantage of PDR's.

                                        Being able to renovate a house or make other improvements is not something usually restricted in a PDR. I don't know of any purchase that has required a landowner to not build a barn or run in shed or machine shed. The landowner can still farm, sell their timber or mineral rights, put new windows or roof on the house, etc.

                                        The only exception I can think of is easements for historic properties. Those might prohibit demolishing dependencies, moving graves, or specify that the landowner not use modern materials on the exterior of the house.

                                        But that could occur on a conservation related PDR too.

                                        I know some people on this BB dislike these programs and believe they infringe on property rights. I understand and even agree with a lot of the concerns but am just offering this information for people interested.

                                        For people who would like to do some conservation work on their land, but are not comfortable with permanent restrictions, there are many programs out there that can provide free advice, cost-share, and other forms of assistance. Also, a person can enroll their land in the ag and forestal district if one exists, CRP, etc.

                                        All these programs and measures have tax implications for the landowner, so it's something to be entered into with good solid tax and legal advice. Also, a person will want to make sure any restrictions or enrollments fits into their personal financial and estate plan.

                                        Hope that helps.
                                        Brothers and sisters, I bid you beware
                                        Of giving your heart to a dog to tear.
                                        -Rudyard Kipling

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