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What Is a Conservation Easement? - YouTube
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what is a conservation easement that's
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today's episode let's dive into it here
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we are our very first rental property
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[Music]
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hey everyone I'm Clayton Morris I'm
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Natali Morris and this is the investing
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in real estate show it's the show aimed
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at helping you build financial
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intelligence so you can build financial
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freedom and on this show a lot of times
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we like to sort of learn in public
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things that we're currently learning
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about that can maybe lower our taxes
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help us build wealth in some appreciable
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way and so that's what today's episode
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is all about we're learning something
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new and want to share it with you right
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so our tax accountant suggested we learn
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something new this is usually when I get
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homework when we're doing taxes but we
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both did homework on this one we did
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right and they sent us a bunch of PDFs
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to read and thankfully I had a trip to
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the DMV so I pulled it out read it there
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and they said maybe you should consider
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a conservation easement do you know what
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that is and I said no I do not right so
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I started to read up on it now I want to
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be clear we have not done this we are
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not experts in it we are trying to learn
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it and we think maybe you know this is
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now December 2019 it's unlikely we will
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do it for our 2019 taxes but it plants
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the seed for possibly 2020 2021 that's
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what we want to do for you just plant a
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seed you know it exists and then huh
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okay maybe hey right and so seek the
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advice of your tax accountant if you
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don't have a good real estate tax
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accountant you absolutely should we'll
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have a link below to a great team at
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wealth ability that does our taxes
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they're fantastic so check them out if
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you're interested now I should say that
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we we're thinking about okay maybe this
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is something we would do in 2019 taxes
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but as you mentioned we're not yet we're
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still researching it and it's something
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it's like an arrow in our quiver so it's
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something we might use at a later date
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and pull it out when we need to okay so
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let's get down to basics what is this
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why do you need to know about it what is
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a conservation easement the simplest way
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to understand it is that you owner of a
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piece of property you must be an LLC
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that owns the property we'll donate this
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land to the government now that doesn't
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mean you don't retain rights to it it
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may
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you sort of stamped down saying this
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land will stay as it is
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in perpetuity I'm donating it for
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conservation will conservation of what
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well it could be historic district it
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could be rights of land access I
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remember when I lived in the state of
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Montana
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there were easements and the state had
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rights that you everyone had access to
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river ways even if you had a property on
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a river guess what if I wanted to go
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down there and fly fish that easement
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allowed me to go and do that right there
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are certain different easements there so
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it's a historic access to lands it's
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somehow precious right and you and the
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government together will agree it should
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stay as it is in perpetuity right so
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maybe there's a building on it that's
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historic maybe there's right some kind
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of like natural use of it that the
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government wants to retain right so you
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the LLC donates the land to the
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government while still retaining the
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rights to use it and then the land is
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like forever stamped in time now why
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would you do this
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great question baseline reason is I mean
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well I guess I'm thinking kind of
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selfishly so the first reason you should
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do this is maybe because you love the
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land you're like oh there's a beautiful
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geyser there so I want to donate this to
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the US government and other people can
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come and see this geyser or these caves
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or something else right that may be I
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hope that might be your first
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consideration right it's like the love
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of Mother Earth and the appreciation for
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not over developing our country but
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what's the other maybe more
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business-friendly reason that you would
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want to do this and why does the
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government sort of reward you for this
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it's because it would lower your overall
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taxable burden as a right so you will
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end the IRS file a tax return together
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now you're partnered up in this land
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right and you say the land is worth X
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and then you get the taxable deduction
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for donating that to the government
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right that doesn't mean then you can't
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like if there already was
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historic rental property on there and
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you continue to rent it out and your LLC
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continues to collect rent that still can
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happen right it's the amount of the
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donation that now you're lowering your
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taxes by in any given year now this can
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continue to lower your tax rate in a way
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that's complicated probably a little too
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complicated right podcast but it is an
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amazing way to think about in that one
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calendar year donating X amount right
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right or continuing to reap benefits in
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future calendar years right and we
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should be specific this as I understand
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it at least at this stage in our
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learning journey of this is that it just
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applies to land itself the land use so
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if you know residential property on said
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land does not qualify under these rules
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it would be the land underneath that
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particular building historically though
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that's another interesting you know we
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know property and historic district that
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took a long time to get renovated nearly
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two years of renovation it was a big
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project and the historic district had
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you know we had to go through all
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additional different permits because of
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the historic district so that might be a
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property that would qualify under this
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under these guidelines absolutely right
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yeah or you have a property and it's got
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a piece of it that's got like a
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beautiful stream on it is it possible
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the LLC apportions that off and donates
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it right you still have access to it but
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it no longer belongs to the LLC it
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belongs to the government and that piece
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of it but then that also protects the
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stream that means no one can ever go and
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improve it again now these have been
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used by savvy investors for many years
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but in the last I want to say decade or
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so there had been some challenges to
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this because the IRS was noticing people
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doing this and taking large don't
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taxable deductions and they didn't like
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it obviously the IRS likes to collect
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your money rather than let you out of
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that obviously so they challenged it and
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recently
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the Trump administration signed into law
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legislation that means the IRS must have
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a specific reason to challenge your your
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conservation easement they can't just
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say ha we see you took that we're gonna
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look into that we're not sure if we like
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it they have to specifically say why so
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no more like cat and mouse games so for
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now this is a pretty solid thing to be
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doing right but governments change and
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as our tax accountant reminded us this
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could all change under a new
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administration it could make it less
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favorable and the government could come
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in and vote one way or the other
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Congress could shift this law back the
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other way which might be less business
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friendly so if someone has a
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conservation easement and decides to
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build upon that they're paying lower
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they're lowering their taxable burden
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but they're also building something for
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profit on this Newt on this property is
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that going to be a problem right you
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have to have qualified people to help
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you do this you can't just say this land
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in my heart is worth two billion dollars
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right there has to be a qualified
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appraisal of the land and so there's an
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agreed-upon value right because I'm
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assuming you'd have some kind of
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attachment to the land but what if you
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don't have anything you could donate to
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the government can you still take
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advantage of this that's an interesting
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question can you do it without having
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ownership you can so let's say you've
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just looked in your balance sheet and
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you're like I don't have anything to
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donate to the government that's a piece
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of land that should stay as is well in
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that case you can invest into a
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syndication of a conservation easement
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so some people will all go in together
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invest their money and then now you're
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in an LLC syndication with other people
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and you get your allocated deduction
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because you've put the money in this is
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something I'm just gonna read this
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example to you because I don't want to
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get it wrong so let's say for instance
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you find something that you can put a
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hundred thousand dollars in a
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Conservation syndicate right and you get
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a five hundred thousand dollar
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charitable contribution now let's assume
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you're at the highest
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tax rate which is 43 percent because
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that's 6% plus 37 percent then that
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would save you two hundred and fifteen
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thousand dollars because that's five
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hundred thousand times forty three
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percent right so you'd make money on
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your return of one hundred thousand
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dollars you bought into something and
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you get a hundred and fifteen percent
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return Oh almost immediately
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right but of course the IRS is gonna say
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like is this the real thing let's let's
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make sure right there has to actually be
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something attached to it whether you own
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it or not there are specialists who help
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you find these things people that you go
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out and you say I'd like to get in on
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this again I want to say it's not just
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something you throw your money into
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because you want to be taxed less it's
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something you think well the government
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wants to preserve our beautiful land I'm
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in on that too I'd like to put my money
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there and reap the benefits that the
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government is putting out there as an
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option we own a bunch of raw land right
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we've owned a bunch of raw land in a
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beautiful area and there's some wetlands
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area as well associated with it this
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might be an opportunity because I hadn't
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even thought of this until we started
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doing this that this might be an
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opportunity for us to look into because
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that land was expensive it's a great
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space and it could be an opportunity for
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us to protect the wetlands to to
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preserve that great space right hmm my
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questions continue to abound though the
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more we research this because could we
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then sell it like we could never build a
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property on it which was our original
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intention we would never be would we be
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able to sell it or would we be able to
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sell it with the conservation easement
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only so these are all questions for our
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tax account right which might be good
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actually because the neighbor wanted to
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buy it to make
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sure that it was unimproved so we could
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sell it to the neighbor with the
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stipulation that it may not be improved
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I don't know
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well we never did yeah these are
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questions for our tax accountant and
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look we should also say it can be very
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state specific as well and community
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specific because there might already be
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restrictions in place about what takes
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place on that land within the community
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right so this is an interesting
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discussion to have with your local
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attack with your tax account as well as
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like the local municipality because
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there are but there are already
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easements on this property there are
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already waterway easements oh so again
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but killer strategy right I mean when
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our tax accountant brought this to it I
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said this is an amazing strategy if you
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have a lot of income in a particular
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year
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and you have real estate investments
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would it not be smart maybe to roll and
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move some of those over into a
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conservation easement to lower your
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overall taxable burden if this makes
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sense for you yeah so like I said the
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questions just snowball when you start
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to learn something like this which is
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the way it should be right so um the
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Virgo and me wants to apologize for not
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having all the answers we don't have a
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by the way our tax accountant didn't
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have all the answers either great and
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we're sort of at the mercy of how the
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law is currently written with Congress
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and as you know under the most recent
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tax law there's still a bunch of
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vagaries in that tax law that tax
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accountants very smart CPAs are hoping
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Congress will solidify and make less of
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egg Clara I guess the word would be
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clarify right clarify so we don't have
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all the answers we learn here we give
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you the tools to kind of go out there
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and help you to start building wealth on
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your own so that's today's episode
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everyone go out there take action become
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a real estate investor even if it's a
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conservation easement if you can figure
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that maybe that may we'll see you next
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time
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