Conserving for Dixie: An Introduction

I am going to tell you how to save our beautiful land, generate revenue for The Cause, and starve the Beast. I am not giving YOU, personally, any legal advice. The FDA has not approved this drug, and I write purely for entertaining porpoises.

You have to have something to risk, and a threshold for risk to take advantage of this, but if you are surfing to this rambunctious corner of the interwebs regularly, you probably already have the risk threshold part. 

Also, this will be an overview. There are a lot of nuances, but this is powerful enough that I wanted to share it with you, because I think you will see the practical possibilities for how this can help further our vision of a new Dixie emerging.

Before continuing, if you Google what I describe here, you will read scary articles.  Ignore them, and talk to someone with actual experience and knowledge of the relevant law.  If you want to, send a message to me via Identity Dixie, and they can get it to me.  Congress continues to authorize this, and the IRS continues to hate it.  But it is the law, and enjoys bipartisan support.  End of Disclaimers.

You can conserve your land for future generations, still use it productively now (with some restraints), dramatically reduce your tax liability and that of others, and, without having to wait on the delayed return of investment from developing your land, make a goodly pile of Yankee lucre.  Or, as I like call it, “Dixie Seeds.”  Here is how (this is a complex transaction, so do not attempt it alone):

First, have land.  If it is not owned in an entity, transfer it to one that is pass-through (usually, an LLC). That transfer should not generate tax (in most states, and federally).  This works best with larger tracts (50+ac., but unique properties may not need that much land).  Some tracts work better than others, but that’s beyond the scope. 

Next, find out what the “highest and best” use for your land is.  This requires the expenditure of some money.  Expect to spend $200,000 to $300,000 in advisor and specialist consultants (geologists, civil engineers, surveyors, attorneys, mining consultants, architects, etc.).  You may want to take on a partner or two to help.  Stay with me people, stay with me.  Most or all of that should be tax deductible, and when we get to the end, you will see why it is worth it, potentially (there is always risk).

The “highest and best use” could be an office building, or it could me a granite mine, or it could be a retirement community. The money you will spend will be to get a verifiable “highest and best use” value opinion from experts who determine these things all the time, and are very good at it, and they are very good at proving it under examination. 

If you contribute a conservation easement, you are entitled to deduct (as a charitable deduction) the difference between the “highest and best use” value of your land, and the value after the easement contribution. 

In other words, if you could legitimately build a world class resort on your land, and generate $500,000,000 of profit in 20-25 years, but putting a conservation easement on your land would lower its value to $500,000 then the value of your charitable contribution is $499,500,000—the difference between the highest and best use value, and the after-easement value. 

On a side note, the qualified appraisals do not always track, exactly, that return-on-investment figure for your highest and best use. But they are usually in the same neighborhood, at least.

Next, identify a qualifying organization, usually a land trust, that is interested in accepting a donation of a conservation easement on your land.  Here is how that works: you (your entity) contributes a conservation easement to the land trust. In that easement deed, you spell out certain specific things about the conservation purpose, and the permitted uses consistent with the conservation purpose.  Usually, you contribute some money to the land trust, also, (tax deductible, if done right), and they put that money into a fund they use to monitor and, if need be, enforce the easement.

You can usually timber the land, engage in agriculture, build 3-5 houses, sell hunt leases, or other compatible uses.  Some golf courses have done this successfully.

That contribution of a conservation easement is a charitable deduction, and can be used to reduce your adjusted gross income by up to 50% (currently).  For farms, it is potentially 100% of AGI.  This is different than a credit, which reduces your liability, dollar for dollar.  A deduction reduces the amount of income on which you calculate your income tax liability.  Charitable contribution deductions can be used for six years, if you do not use them up in year one. 

So, if you have $2,000,000 of charitable contribution deduction, but only $100,000 of adjusted gross income for the next six (6) years, you can apply $50,000 of charitable contribution deduction each year for this year, and an additional (carry forward) five years.  So, you would only be able to use $300,000 of your available $2,000,000 charitable contribution deduction. That seems like a shame to me. Doesn’t it to you?  Hold that thought. It’s about to get good.

In order not to waste that charitable deduction, why not invite some other people to share ownership of the land, and that charitable deduction can be passed through to them, as well?  You could do this out of the kindness of your heart, by gifting them shares in your pass-through entity.  Or, you could sell the interests and generate Dixie Seeds.  The way you make the Dixie Seeds, is you invite others to purchase interests in your pass-through entity, which entitles them to a pro rata share that will be more valuable to them than the amount they invest in your entity.

For example, if a qualified appraiser says that the value of your conservation easement contribution is $50,000,000 then you could realistically attract investment to the tune of $12,500,000 (these numbers are not unrealistic, in my experience, and some much higher).  Put another way, for every dollar of investment, there are four dollars of charitable contribution deduction that will pass through.  Of course, you will want to retain enough interest in the entity yourself, so that your tax liability will be only precisely what it must be.

Beautiful Dixie is conserved from Yankee soil destroyers, the Beast is starved, and Dixie Seeds are delivered to you, a Founder of the new Dixie.  Use these seeds to hire people who have been unjustly fired, or to fund Dixie art and writers and organizations, to set up a small bank to help Dixie patriots (“Dixiepats”) buy their own land, endow a chair at an institution and give Padraig Martin tenure, and so on. Ask enough questions below, and I will write another article that addresses them. Think for a minute about the good that could be done with this.

-By Dixie Anon