Land for Love and Money

by Reid Lance Rosenthal

  If you put together a good team of competent professionals who are familiar with easements and you have a crackerjack, experienced Grantee (and no problems arise in the process), you can get an easement done from idea to recording in four to six months. If you’re really lucky you may shave a month off that. The odds are it will take longer. Plan accordingly. An easement affects the entire year in which it is recorded. I’m chuckling. Like a divorce. I suppose you could say you are divorcing some of your property rights from your property. So an easement done on December 31 will shelter your income for the entire 364 days prior to that. There are other benefits too, in using conservation easements, which are discussed in other chapters.

  Leaving a Preservation Footprint

  Easements are unique in that you can leave a perpetual preservation footprint upon the land—which is highly gratifying, and you get paid to do the right thing. Not many opportunities in life carry that combination of existential, spiritual, and financial benefit. But if you don’t do it correctly, you can strip all the value from your property and render it virtually unsalable. See Section V.

  There is also what I call “money easements” available. This type of easement process is generally done through a government agency whose target is specific conservation values, such as along creeks and riparian areas. Some of these easement programs actually pay you for each year of the easement and additionally generate some tax benefit, but there are trade-offs to dealing with the government on an easement. You will have to weigh them for yourselves. Suffice it to say that in my forty years in real estate and many, many, conservation easements, we have never done one with the government.

  There are yet other facets to tax savings. If you have mineral reserves, (oil, gas, etc.) there is “depletion.” The purchase of certain equipment useful in land operations can generate tax credits. Alternative energy or energy savings installations for your rural home, irrigation system and other land related power needs can also earn you deductions, credits and grants.

  Taxing the Wind?

  Did you know of the tax on wind? It’s coming! Wyoming actually passed a law, which is quite clever, in the last twenty-four months. The statute designates wind as a real estate asset that is appurtenant to the land. Wyoming real estate contracts now actually have boxes that need to be checked by the seller certifying to the buyer that the wind asset has not been severed from the property, i.e., leased to a wind power generator, for instance. Remarkable. However, can you think of any asset that is not taxed in some way? Nope. The tax on wind is coming.

  One of These Days

  Have I touched every aspect of real estate tax, or tax related to real estate tax land? No. But I hope I’ve afforded you a taste of some of the main tax components that can generate or save significant tax dollars in the purchase, sale and ownership phases of your land experience.

  One of these days the tax code will be much simpler. It may hurt a bit at first, but it will streamline government, power up the economy, and increase revenues. It would not surprise me to see many of the tax mechanisms described above disappear. However for now, unfortunately for our country, but fortunately for the owners of land and real estate, the tax statutes continue headed for further convolution and continued new specialized niches of tax breaks designed to be enjoyed by the owners of land and structures.

  1For url links to Tax Code details, see the Resources section in the back of this volume.

  2Certain types of property, such as commercial and a narrow band of production property, can depreciate buildings in addition to personal property over 39.5 years. A “segmented cost study” can separate out components (heating system for instance) and those components can be depreciated more quickly.

  3See Resources section for url links.

  4In very simple terms (check specifics with your CPA) land for land, house for house, commercial property to commercial property.

  Birds chirp, sunlight filters through shimmering leaves and deer delicately browse in grassy meadows. The Veteran’s Day Parade consists of two fire trucks and three hay wagons pulled by pickup trucks converted to makeshift floats by the school kids. Rural lands and small towns are indeed idyllic. However, beneath the surface sometimes seethes a bubbling brew of politics, friendships, enmities, humor, rancor, rumor and occasionally envy—not unlike the dynamics of most families.

  Like many aspects of life anywhere, life in rural areas is not black and white—the positives counterbalance the negatives. Yet I believe the attributes of small communities far outweigh the detriments. For those unfamiliar with small towns or the more sparsely settled areas outside the metropolitan cores, this section will be an amusing insight. The tips and experiences in this Section IV, and a sister section in Volume Two of Land for Love and Money, may save a landowner from a permanent faux pas within the community, assist you in quickly gaining respect and will certainly add to your overall enjoyment of your land and potentially wonderful small-town experience.

  Some may argue this section is somehow “looking down” at small town personalities and life. Others may wrinkle their nose at the lack of “urban sophistication” of rural enclaves. Truth is, I love small towns, little bergs and rural enclaves, and most of the characters who inhabit them. There is no adequate way to describe a small town, Friday evening football game starring the local high school squad—no more than six to eight kids in the really tiny communities. The fading warmth and color of a setting sun, cool evening air caressing your skin, electric excitement of the crowd standing four or five deep around the perimeter of the gridiron, many folks still splattered with manure or smelling slightly of diesel.

  There is a moment—the two teams lined up on either side of the field, the meager nightlights struggle with the dusk, when the “Star Spangled Banner” echoes in scratchy tones from an old, donated loudspeaker box sitting on a wobbly raised platform, when cowboy hats and farmers caps are held over the heart and there’s not a whisper in the gathered throng, and our nation’s flag snaps red, white and blue against a darkening sky and the first glimmers of night stars—that pride in our country and the nostalgia of Americana, is overwhelming. This sense of community, of being a small part of things greater than yourself, fills your spirit. At that moment, you thank God that you are standing in that spot, amongst friends, frozen in a magical minute in the inexorable passage of universal time.

  Truth be known—I have tears in my eyes as I write these paragraphs. Small towns are great things.

  The first prerequisite for getting along in a rural community is to understand that everyone knows everyone else’s business—or thinks they do. What vehicle you drive, when you pick up your mail, and the most recent mischief of your child are titillating tidbits for discussion. News, usually only partially correct, travels like the wind from a force-five hurricane. Truly, a whisper on the south side of Main Street is a scream on the north side of Main Street in one nanosecond. This lightning transmission of gossip, innuendo and scattered facts is not limited to just your community, but freely bounces around every little town in your area.

  About twenty-five years ago, I was living in a small town in Colorado. My former wife, Darlene (who is still my very good friend), and I traveled north to Montana to see another friend of many years. We planned to do some fishing, riding, some scouting for the upcoming hunting season and relax and enjoy one of our favorite spots. Early in the trip, Bob drove Darlene and me into Sheridan, Montana, which was then a small town of about six hundred people. Bob pulled the truck up to the front of the IGA on Main Street in a long line of pickups, jeeps and horse trailers. Darlene was sitting between Bob and me. I had to run into the store to get a pack of gum and a coffee, a thirty-second in-and-out quick stop.

  Bob’s house, a delightful older frame cabin, was located on forty acres about five minutes from town. As we returned to the homestead and rolled up to his front door in a cloud of summer dust, he cut the engine. We could hear the phone ringing inside. While Darlene and I collected the gear, B
ob jumped out and ran in to answer the call. He emerged ashen-faced a few minutes later.

  At that time, Bob was dating a woman named Judy, who was going to graduate school in Missoula about two hundred miles north of Sheridan. In the brief thirty-second period while I disappeared into the IGA, Darlene and Bob sitting together shoulder-to-shoulder on the front seat was witnessed by Judy’s cousin, who lived in Sheridan. She had called Judy’s sister in Bozeman, eighty-seven miles to the northeast. The sister had in turn phoned Judy’s mom in Billings, about three hundred miles to the east. The mother then rang Judy in Missoula, almost four hundred miles north and west of Billings. Bob related to us with wide eyes that it was Judy on the phone wanting to know, “Who the hell the babe was in the front seat with you?” News literally traveled a full circle of nine hundred miles in less than three hundred seconds. That’s how small rural areas are.

  The other side to this coin is that small communities have retained more of the frontier values that made America great. Rural folks are more likely to be self-reliant, instantly rally to help others in an emergency, and generally exhibit more common sense. This grass-root, neighbor-to-neighbor linkage and tight town bond, in my opinion, far outweighs the nosey, gossipy negatives.

  The second equally important concept to grasp about sparsely settled areas is that everyone knows everyone, and most folks in some way, shape or form are related by blood or marriage to most of the rest of the population. Long before a new landowner arrives on the scene, most residents have formed an opinion about everyone else in town. The tentacles of interrelated prejudices, dealings, histories, friendships, adversaries and mutual back-scratching are intricate coils. Words uttered without consideration to the wrong person at the wrong time could unintentionally result in castigation by half of the population in the valley.

  I have developed my own theory over the years about this social phenomenon of rural areas. I suppose one could find the same set of interactive rules and reality in tight-knit local neighborhoods in the big city, but I lack that experience.

  I surmise that very early on in the developmental stage of a child who grows up in a small community, the kid invariably gets involved in some type of dispute with another youngster. Perhaps Tommy took Joey’s truck in kindergarten class, or Sally grabbed Betty’s doll during recess in first grade. The ensuing altercation teaches the children a life lesson. If Joey picks a fight with Tommy, he has then picked a fight with Tommy’s friends, Tommy’s siblings, Tommy’s parents, their friends and family and so on. In towns of several hundred people or even several thousand, one event in a child’s life teaches them that, in order to get along with the majority of people, it is usually best to withhold negative comments and shy away from topics of dispute.

  While the romantic image of honest, level eyes that look into yours, and agreement on a deal sealed by a firm handshake, is true enough with many people in rural areas, it is also a mistake to place complete faith and confidence in such simplicity. The majority of small community inhabitants are absolutely terrific, upstanding, straightforward people. However, as in all locations, rural or urban, there is a percentage of the population who will tell you what you want to hear, but will not do what they say, or will say the opposite thing to someone else ten minutes later. They will not share with you what they really feel. They learned way back in kindergarten that this is the way to not be liked. Some folks feel regrettably compelled to spread misinformation about “the newcomer.” Their perception is that such negativity is a step up the local social ladder at your expense.

  My thoughts here are not intended as insults to rural communities. My heart is only happy in such enclaves. But reality cannot be ignored when making a sizable investment of energy, emotion, money and time in a rural property, especially if you plan to spend considerable periods, or the rest of your life there. My advice remains to keep your ears sensitively tuned, personal perceptions on full alert, eyes wide open and trust your gut. The true friendships you will make, and the sincere mutual respect you will share with some residents, form an important base for acceptance from the community at large.

  I have gotten this right and I have also goofed. No matter how many properties I have owned or managed in small towns and rural communities, I can count on inserting my foot between my mandibles and munching on my toes from time to time.

  Twenty-five years ago, I was still a resident of Colorado. Enthralled by the beauty of the Big Sky country, I spent as much time as possible fishing in Montana. I had made friends with several of the local ranchers who had places along the Ruby River and had received much-coveted permission to occasionally fish on their properties. One ranch family knew I was involved in real estate and had a farm and ranch background.

  It was a warm summer evening, and while I was having a burger at the local joint, all six family members came over to talk with me. I will call them the “Jones.” The Jones had encountered a problem. The mid-eighties were not kind years for agriculture. Ranchers and farmers around the United States had been exhorted by the federal government to grow and produce more, because “America was going to feed the world.” The feds forgot to inform them of pending trade agreements with Canada and Mexico, which without warning, suddenly opened the U.S. markets to a competitive flood of foreign agricultural and bovine-based products. Interest rates were still high from the Carter recession; families who had taken on debt to expand based on the government’s promises, found themselves strapped.

  This family had run into a problem with financing for their mother cow herd at the local bank. They wanted to know if I had any advice, or if I could help. I have always been for the underdog, and not much partial to institutional monoliths, which are bureaucratic, often lack common sense, and are typically arrogant. I told them I would meet with their lender. My fee would be permission to hunt whitetail on their place that coming fall. 165

  They collected their documents; I met with them and the bank officer. We put together a structure that they and the bank were both pleased with. This gave me great satisfaction.

  A month or so later, during an evening ablaze with a crimson Montana sunset reflecting off the dimples of rising trout along a stretch of the Ruby, I was again asked for assistance. I didn’t know the old rancher who owned the place very well, but I knew he was fourth-generation and worked the place with his sons. I was tying on a fly when I felt his presence. I turned and saw him about twenty feet behind me. I will refer to him as “Harry.”

  “You know your way around finance and ranch stuff?” Harry asked, without even a hello. Not exactly sure of where he was going with his question, I scrambled up the bank and sat down on a log. He sat beside me. I was shocked to see tears in his eyes.

  “My dad, grandfather and great-grandfather were in land and cattle, and I have owned a couple of places myself,” I said cautiously.

  “I understand you helped the Jones with their cow deal.” His twisted, calloused hands clasped together, clenching and unclenching. His elbows rested on his knees and his weathered face was dejectedly fixed on the ground between his boots. “My daughter is married to the Jones’ oldest boy.”

  My eyes widened a bit with the revelation of connection. Harry poured out his story to me. We talked long into the dark of the evening. The Farm Credit Agency had taken his sprinklers, threatened to take his cows and had raised the specter of a lawsuit on the guarantee that he and all his sons had signed on the ranch. They were broke and he didn’t know what to do.

  From Harry’s forlorn tale, I had the strong suspicion his lender had acted improperly. In synopsis, over the next nine months, for a fee of 3% of what I saved him, to be paid over time, I focused on helping this family. The lender had indeed imperiously and illegally breached its loan agreements. The sprinklers were returned, liens were released on the cows, a $2.2 million land debt was written down without litigation to a fraction of that amount, the personal guarantees were released and other matters beneficial to Harry and his sons were worked out.

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bsp; I was flooded with calls thereafter by acquaintances and friends of Harry’s. I am proud to say that in those years I helped over forty long-time ranch families stay on their ranches and revamp their operations to once again be viable in changing times. Besides enormous personal gratification, that group of people also formed the foundation of my friendships and what I call a small community goodwill nucleus.

  There are times, however, when my intelligence falters. Harry’s grandson played football for the local, tiny high school. Several years after I helped Harry with his financial workout, he invited me down to see his grandson play in a game against arch-rival Twin Bridges, just nine miles down valley. The sidelines were crowded. I found myself standing next to a gentleman with whom I exchanged a few friendly comments. The refs made a particularly bad call against Sheridan.

  I said to the man next to me, “I wonder how much Twin is paying that ref! What a bad call!” There might have been an expletive in there, too.

  His head snapped around and his eyes glared. “That’s my brother!” he said and stomped away.

  I found out the next day that not only was the referee his brother, but that his brother’s brother-in-law owned the well-drilling company over in Butte that was going to drill a well on one of the ranches I managed. I was also informed in the following day’s strained phone call from the brother-in-law that his two well rigs were suddenly really busy, and it would be years, if ever, before he would get one out to the ranch. I learned a quick lesson in watching what I say.

  Fortunately, in the end, that turned out to be a good thing because I hooked up with the local driller in Sheridan, who has now drilled more than a score of wells for us over the ensuing years. He’s terrific, very honest and has never yet punched a dry hole for any of our wells. As an aside, I found out the Sheridan well driller had gone to high school with the patriarch of the Jones clan. Small towns are small worlds indeed.