Incentives To Preserve
This is the second article in a series examining various aspects of real estate on the South Fork.
Private land conservation is a South Fork territory in which a lot is happening, although few people ever hear about it. Even fewer understand it.
Jon Grossman, a developer and vice president of the Windward Group real estate agency, became involved, like some others, inadvertently. Trying to decide whether to build a house for speculation on two Accabonac acres he had bought, or heed the warning signs from the salt marsh and cedar forest that cover most of it and rid himself of a risky project, he ended up doing both.
Land Swap
"We had all the permits to build. But the more time I spent up there, the more I felt funny about it. It's such an environmentally sensitive piece of property that I felt I should find some way of preserving it," said Mr. Grossman.
"I'm not a philanthropist, though. I needed to come out of this with some kind of return."
He called Paul Rabinovitch, director of land protection at the Nature Conservancy's East Hampton office, and offered to sell.
Coincidentally, Marjorie Jonas of Amagansett had recently donated to the conservancy a three-acre lot nearby, on Red Dirt Road in Springs, which the conservancy determined had no ecological value.
Mr. Rabinovitch proposed a swap.
A multifaceted deal that took a year to craft ended up merging Mr. Grossman's parcel into the nature preserve around the shores of Accabonac Harbor. The preserve is being created one lot at a time by the conservancy and East Hampton Town.
Tax Benefits
Ms. Jonas's gift made her eligible for an income tax deduction, which she could use to offset any capital gains tax from the sale of her adjacent house lots.
Mr. Grossman got a three-acre lot on which to build a house and a break on the property taxes for that lot through a conservation easement.
To cover the difference in value between his waterfront lot and Ms. Jonas's upland one, the developer also got a $60,000 income tax deduction he can spread over six years, and a $10,500 "boot" - a cash payment - from the conservancy.
Private land conservation is the purview of land banks such as the Nature Conservancy and Peconic Land Trust, environmental organizations such as Group for the South Fork, and a small number of tax lawyers, private planners, and accountants.
Spurs To Preservation
The financial incentives they offer to individuals for preserving all or part of their property include outright gifts, phased-in gifts or purchases, land swaps, bargain sales, conservation easements, the sale of development rights, and reserved life estates, which allow the donors to use their property for his lifetime while removing it from the taxable assets in their estate.
More than 2,000 acres in East Hampton Town have been preserved so far through such private means. And, with limited funds available to buy environmentally fragile land outright, the town's current plan for 700 as-yet undeveloped parcels here relies more heavily than ever on those methods.
Few Can Afford It
Outright acquisitions such as New York State's recent $4.18 million purchase of the 340-acre Sanctuary property in Montauk, a deal the Conservancy negotiated, are increasingly rare. So are outright purchases by private nonprofit organizations, which are almost entirely dependent on donations.
Gifts, such as Deborah Ann Light's to the Peconic Land Trust of 20 acres of woodland and orchard at Stony Hill and 193 acres of farmland at Quail Hill in Amagansett, are also the exception. Ms. Light had expected to leave Quail Hill to the trust in her will, but changed her mind and signed over the deed two years ago.
"There are only so many people with hearts of gold walking around," said Mr. Rabinovitch. He pointed out that most property owners, like Mr. Grossman, cannot afford to give their land away, income tax deduction or no.
Income Tax Breaks
As a result, various other tax incentives have been developed over the years and have received the approval of the Internal Revenue Service and other taxing agencies.
They are not, however, without their critics, who sometimes say these incentives are little more than new tax dodges for the rich.
But, said Robert DeLuca, president of Group for the South Fork, "we have to assume any land that is available for development will be developed. And we will all pay the price for the increased need for services - schools, roads, fire protection, and so forth - through suburban growth and higher property taxes."
"The income tax break these donors are getting should be a secondary consideration for us here," he said.
Robins Island
The roughly 395-acre conservation easement covering all but 40 acres of Robins Island in Peconic Bay will reap the island's owner, Louis Bacon, a multimillion-dollar income tax deduction for the gift of the easement to the conservancy, said Randall Parsons of LandMarks Associates, a land-planning firm based in East Hampton Village.
Voluntarily encumbering a property with an easement meets the criteria for a proportionate reduction in property taxes as well.
But, said Mr. Parsons, the Robins Island easement, filed just three weeks ago, will not only insure the island never has more than one dwelling on it but also preserve its historic use as a nature preserve and hunting lodge, and allow environmentalists and biologists to study there.
"Bargain" Sales
Among other preservation methods, bargain sales are becoming increasingly popular. There, a property owner who sells to a conservation group or municipality for less than the full market value may take an income tax deduction for the difference, considered a gift to charity.
The owner could also use the "loss" to offset any capital gains tax that comes due from the sale of that property or another.
East Hampton Town recently bought 25 acres of tidal wetlands at Soak Hides Dreen, which empties into Three Mile Harbor, and from a bargain sale will soon get the chance to expand the holding by 4.5 adjacent acres, for just $28,000 an acre.
Soak Hides Dreen
The owner, Martin Forma, bought about six acres there in the 1970s, intending to build a marina someday. The zoning in those days might have allowed it, but not now.
With the land encumbered by the wetlands and precolonial remains of an Indian settlement, "he never would have been able to build a marina, but he could have spent a lot of money trying," said Mr. Parsons, whose firm was hired to help Mr. Forma "liquidate."
The town is buying part of his property for $125,000, less than the market rate. A resident of Nassau County and Florida, Mr. Forma will have a considerable nest egg as a result and his heirs will not have to pay taxes on the land. The deal closes within two months.
Mr. Forma is also selling two small cottages on the remaining land to the tenants who have lived in them for 17 years, for about $58,000 each. The Town Housing Office has helped the tenants get financing and kicked in $7,300 in Federal Community Development funds to cover their closing costs.
Mr. Parsons said the Forma arrangement was a model of its kind, showing how low-density development or none at all can make good financial sense for an owner.
And, because it satisfies community needs - to preserve wetlands, create open space, curtail development, and create affordable housing - such a proposal is far more likely than a subdivision to win easy approval, said Mr. Parsons.
Tradelands
In some cases, the land involved in a bargain sale or given as a gift is not environmentally fragile. Called "tradelands," those properties are deeded over in the expectation that they will be sold to generate cash.
Such was the case when Ms. Jonas donated her three acres, making her eligible for the charitable gift deduction and giving the Nature Conservancy a means to raise money for (or, as it turned out, leverage) the purchase of some fragile land.
The late Willet Whitmore made a gift to the conservancy of about two acres off Indian Wells Highway in Amagansett, now part of its 200-acre Double Dunes Preserve. Dr. Whitmore made the gift over seven years, though, giving the conservancy an increased partial interest in the land each year and taking the deduction for the gift.
Montauk Sale
In a shrewd move, he had the land reappraised each year. Each appraisal showed a slight increase in value. That meant Dr. Whitmore was able to take larger and larger deductions, said Mr. Rabinovitch. And, by giving away the property, he too relieved his heirs of part of their inheritance tax burden.
In another version of a phased-in transfer, the conservancy is taking the last available opportunity to expand its 10-acre Montauk Mountain Preserve by buying 1.8 acres from Sigrid Owen and her son, Christopher Owen, in two installment payments.
The no-interest deal will allow the sellers to spread the income from the sale over two tax periods.
Farmland Preservation
The preservation of farmland raises a special concern, for the land not to be just preserved, but actively farmed, and conservationists have created special tools as a result.
Most common is the purchase of development rights, which allows a farmer to continue farming and compensates the farmer at the same time for the loss of potential income, from selling off the land as house lots, for example.
However, some local farmers who have taken money for development rights have later felt themselves unfairly restrained by the conditions of the agricultural easement placed on their land.
Henry Schwenk, who sold the rights to his 60-acre Hardscrabble Farm, said he ended up with a retirement fund but still worries that zoning regulations and the limits of the agricultural easement will someday put the farmer who now leases his land out of business.
Long Lane
Mr. Schwenk owns another 40 acres on Long Lane and offered the rights to the town, but said this week he was undecided.
"The town, the county, never mind what they say. They don't give one damn about agriculture. They want to preserve the vista. . . . I have to say, the real problem is, you can't legislate farmers," he said.
The town's $560,000 purchase of development rights preserved 16 of the 20 acres at Cagramar Farms, mostly horse pastures on North Main Street. There, the town paid Joseph Martuscello not to develop 14 of his 17 lots.
Cagramar Farms
Mr. Parsons was hired by the town to negotiate with Mr. Martuscello, who insisted he be allowed some moneymaking use for his land or the deal was off. Eventually, a watered-down version of Mr. Parsons's proposed winery law was adopted, and Mr. Martuscello is planting wine grapes this year.
He took less than the market value for his house lots, $40,000 apiece, raising the possibility of a tax deduction for the loss, but also had other options.
A related Town Board resolution said the town would take any steps necessary, including condemnation, to preserve Cagramar. The proceeds from an involuntary sale - one made, for instance, under threat of condemnation - are entirely exempt from capital gains, said Mr. Parsons.
"Like-Kind" Parcels
Additionally, Mr. Martuscello used the $560,000 from the sale to buy "like-kind" properties, meaning investment properties, nearby on North Main Street. Within a couple of weeks he owned two parcels zoned for business, possibly a restaurant to complement his winery someday.
Capital gains are entirely deferred if the seller buys a similar property of greater or equal value, said Mr. Parsons.
"Mr. Martuscello is a tough businessman, but he has a soft spot for agriculture. What happened at Cagramar Farm should be a model. Maybe it took someone like him to make us cover all the bases," said Mr. Parsons.