| Conservation Buyer and New England Forestry Foundation |
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With the help of a 1031 like-kind exchange and a bargain sale, NEFF matches a conservation investor and willing seller to conserve 656 acres of forest in Charlemont and Rowe Massachusetts. Conservation Buyer—Narrative:The PlayersNEFF Ed Pepyne Kevin Knobloch and Elizabeth Buchanan TerminologyConservation Buyer Bargain Sale 1031 Like-Kind Exchange Conservation Easement The Transaction
conservation investment opportunities. Kevin and his wife Elizabeth were interested in purchasing land for conservation and investment purposes. Additionally, they had property in Washington, D.C., that they were in the process of selling, and were interested in rolling the equity from this sale into the purchase of another property to postpone capital gains taxes. Kevin and Elizabeth agreed to purchase the land from NEFF for $328,000. This sale price included the costs NEFF incurred during the time it owned the property and a contribution to the conservation easement monitoring fund. Kevin and Elizabeth also agreed to put the land under a conservation restriction at the time of purchase, for both personal and financial reasons. The conservation restriction prohibits development of the land for residential or business purposes, but allows the land to be managed for timber products in a sustainable way. The sale enabled Kevin and Elizabeth to defer capital gains taxes on the sale of their property in Washington, D.C. Some buyers of conservation land are also able to use the reduction in property value (i.e. the development rights) from the donation of the conservation easement to claim an additional tax deduction. Because in this instance NEFF sold the property to Kevin and Elizabeth at the “bargain sale” price that they purchased it (plus NEFF’s project costs), the development rights were already removed from the equation and the new owners did not claim a tax benefit for establishing the conservation restriction.; They do benefit from lower property taxes as a result of the elimination of most of the development value. The land’s enrollment in the Commonwealth of Massachusetts’ chapter 61B program – designed to help landowners stave off development pressures and maintain “working” forests – also helps keep local property taxes low. NEFF sold the land to Knobloch/Buchanan in late February 2001. Knobloch/Buchanan reimbursed NEFF for the amount NEFF paid to Ed Pepyne plus an additional amount of approximately $30,000 to cover costs and set up a conservation easement monitoring fund. For tax reasons, the sale price of the land was $292,000, equal to the amount that NEFF had paid Ed Pepyne. The additional $30,000 to cover monitoring and accrued costs was received by NEFF in the form of a donation. At the time of the closing Knobloch/Buchanan donated a conservation restriction on 610 acres. They reserved 46 acres from which they have the right to select two future house sites; a conservation restriction will eventually be placed on an additional 43 acres after the house sites are chosen. The conservation restriction was donated at the time of closing on a voluntary basis and was not in the purchase and sales contract. This was done to ensure that the full tax benefit from the donation could be realized. Structuring the easement donation into the purchase and sales contract could have jeopardized the charitable gift status, and therefore the tax deduction. The 653 acres will remain in Chapter 61 under active forestry with a sustainable timber harvesting management plan. NEFF holds and continues to monitor the conservation restriction on a yearly basis. The property is open to public access by permission of the owner2. Although there have been some problems with dirt bikes and ATVs causing extensive erosion of the shallow topsoil that covers much of this high-elevation land, the owners have given permission to a local snowmobile club to use the property and maintain open access. Hiking, hunting and other passive recreation are allowed. Conclusion:This case is an example of multiple stakeholders each reaching their individual objectives and together contributing to land conservation. Ed Pepyne was able to reduce his tax burden through a bargain sale and ensure that the land he had acquired and owned through the years was protected permanently. Kevin Knobloch and Elizabeth Buchanan were able to defer capital gains taxes on property sold in Washington, D.C. by purchasing the Pepyne property. This property will also serve as a long-term investment. Finally, they were able to take actions that reflected their values by ensuring that the property would remain forestland permanently. True to its mission, NEFF was able to assist in the protection of 653 acres of forestland. It was able to achieve this with minimal expense. The only overhead from this project that remains for NEFF is the monitoring of the conservation restriction for which it received funds from the sale dedicated to this endeavor. References
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In September 2000, Keith Ross, director of land protection at NEFF, negotiated a purchase of 656 acres in Charlemont and Rowe, MA from Ed Pepyne for $292,200. The price was negotiated based on certified appraisals and was a bargain sale, significantly below market price. NEFF held the property and floated costs internally while it identified potential conservation buyers. The first seriously interested conservation buyer backed out of the negotiations at the last minute. 
