Conservation Easements with Enhancement

[Caryn Zeh]

I am appraising a 35 acre vacant parcel to have development rights donated. Current use is agricultural. Half of the parcel runs parallel to the river and is in a flood plain. Therefore, we are looking at only roughly 17 acres having an effect by losing development rights. Town has no zoning.
Directly adjacent is a 5 acre parcel of land held by the same owner, and at the other side is a 150 acre farm owned by the daughter. In fact, she farms the subject 35 acre parcel. So, we are definitely looking at Enhancement.
I know I must appraise the WHOLE before and after, so that accounts to roughly 190 acres....
My question is this--Am I appraising a farm (w/house and barns etc.) with 190 acres or three parcels of land totalling 190 acres ?

 

[PropertyEconomics]

Seek clarification from your client or their attorney or their accountant as to the proper procedure. Sounds like this will most probably go before the IRS and you want to make sure you are right.
You may also research IRS publications for some insight.

Best of luck to you.

 

[Howard]

Explain to me "enhancement".

Are you working under Yellow Book rules and have somehow come to the conclusion the entire 190 acres is the larger parcel? What about Unity of Ownership?

BTW, I agree you need to get advice from that attorney, but you also need to understand the rationale behind what the attorney tells you, then decide for yourself it's a "reasonable" thing to do. If not, you would then have choices to make.

 

[PropertyEconomics]

Explain to me "enhancement".

Are you working under Yellow Book rules and have somehow come to the conclusion the entire 190 acres is the larger parcel? What about Unity of Ownership?

BTW, I agree you need to get advice from that attorney, but you also need to understand the rationale behind what the attorney tells you, then decide for yourself it's a "reasonable" thing to do. If not, you would then have choices to make.

I think the accountant will be more help honestly. The accountant will know how the IRS views things .. THAT ... will be when you make your decisions. When you know those things.

 

[Ariba]

IRS Audits Many Conservation Easements

I am appraising a 35 acre vacant parcel to have development rights donated. Current use is agricultural. Half of the parcel runs parallel to the river and is in a flood plain. Therefore, we are looking at only roughly 17 acres having an effect by losing development rights. Town has no zoning.
Directly adjacent is a 5 acre parcel of land held by the same owner, and at the other side is a 150 acre farm owned by the daughter. In fact, she farms the subject 35 acre parcel. So, we are definitely looking at Enhancement.
I know I must appraise the WHOLE before and after, so that accounts to roughly 190 acres....
My question is this--Am I appraising a farm (w/house and barns etc.) with 190 acres or three parcels of land totalling 190 acres ?

Since you are appraising a conservative easement, I'm sure you are familiar with this, but for everyone else thinking about doing conservation easements, the value of a conservation easement is the difference between the value of land if it were developable and the value once the easement is placed. The Internal Revue Service (IRS) has a position that if the appraiser cannot document and/or show that there is development pressure, there is no value to the conservation easement. The IRS audits many conservation easements and experts who do these appraisals on a daily basis scrutinize the appraisals.

Make sure you as the appraiser have official written documentation from the State, Town, City, and/or County on the development pressures. Have a very detailed workfile. Make sure to dot all i’s and cross all t’s, because you and your client will be audited.

The IRS recently made settlement offers to a number of conservation easements donors whose property values it questioned. The settlement letters dropped the values of the donated easements anywhere from 75%, 60%, 30%, and 0% of the appraisal. Fifteen taxpayers where told their easements was worth zero. One landowner might have to sell his ranch if the IRS does not offer a settlement.

Make sure you are current on your E&O Insurance and charge accordingly.

Good luck.

 

[PropertyEconomics]

Since you are appraising a conservative easement, I'm sure you are familiar with this, but for everyone else thinking about doing conservation easements, the value of a conservation easement is the difference between the value of land if it were developable and the value once the easement is placed. The Internal Revue Service (IRS) has a position that if the appraiser cannot document and/or show that there is development pressure, there is no value to the conservation easement. The IRS audits many conservation easements and experts who do these appraisals on a daily basis scrutinize the appraisals.

Make sure you as the appraiser have official written documentation from the State, Town, City, and/or County on the development pressures. Have a very detailed workfile. Make sure to dot all i’s and cross all t’s, because you and your client will be audited.

Make sure you are current on your E&O Insurance and charge accordingly.

Good luck.

Great Advice Ron .. that was exactly what I was saying when I said you need to know the IRS rules. So many times typical appraisal practice doesnt fit in these situations. Great post.

 

[Terrel L. Shields]

If you have not had the Conservation easement course taught by the AI, I suggest you might want to pass on this.

 

[Caryn Zeh]

Conservation Easements

THANK YOU ALL FOR YOUR ASSISTANCE!
I valued all opinions and based on that and some extensive down and dirty research i conducted, I knew this was not an assignment I wanted to take on, and passed. Thanks again and Happy Holidays to all.