Maine Land

Tired of paying Taxes? Try a Like-Kind Exchange

Death and taxes. Neither can be avoided. However, with some clean living, careful choices, and a little luck the former can be delayed. So can the capital gains tax on the sale of your real estate, which happily only requires some planning.

The tool to make this delay of tax is known as a Like-Kind Exchange, often referred to as a 1031 exchange, from the IRS code of that same number. As of January 2018, this only pertains to real property used productively in business or held for investment and not personal property such as equipment, vehicles, and other such things.

What is a like-kind exchange? Simply put, it is exchanging one property, held for productive use in a trade or business or held for investment, for another property for those same purposes. What it is not? It cannot be used for delaying taxes on real estate which is held primarily for sale, often referred to as dealer property, where it is your business to buy and sell real estate for profit. This will likely be taxed as ordinary income.

Pros and Cons – The benefits of using a like-kind exchange are pretty obvious if growing your real estate investment net worth is your primary goal. Reinvesting equity gain which would otherwise be paid to Uncle Sam in capital gains tax, may net a better return on investment. The downside to the exchange can be the lack of liquidity of real estate in general and less diversification of investments. As an example, if a great stock opportunity became available to you, the equity from the property sale could not be used tax deferred to purchase it.

Is it complicated you ask? We are talking about the IRS, so of course it is. Nothing worthwhile ever comes easy. There are several types of exchanges and rules such as time to complete the exchange, naming of properties to exchange into, and not directly receiving the proceeds from the sale of the relinquished property, plus many other potential concerns. The process involved in an exchange can take up many chapters in how-to books, so I will not cover all the details here. The good news is, if you are interested in an exchange, there are professionals out there, such as Qualified Intermediary (QI), CPAs, real estate brokers, and attorneys that can guide you through the process.

If you think that the like-kind exchange is a possible route that you may take, plan it from the day you put your property on the market. Engage the appropriate professionals that are required to help you. Be sure you inform the buyer of your property about your intentions to exchange in both the property disclosure and purchase and sale agreement. This is not necessarily required but certainly will make for a smoother closing.

If you need more information, here are some links to the IRS website and a QI and attorney we have used.

Rudman and Winchell Asset Preservation Inc. IRS Guidelines IRS Form 8824

 

Maine Shoreland Zoning Rules 101

Before you purchase that lake, ocean or river front land, home or cabin in Maine, you should know a little about shoreland zoning rules. This includes all area within 250 feet of the normal high water mark of the water feature. Knowing the basic rules will help you better select a property that meets your expectations.

As Mainers, we often take good water quality for granted. It is well protected here, but that is not the case in every state. Recognizing the value of water quality to fish, wildlife and us humans, the state adopted shoreland rules with beginnings in the 1970’s that continue to be updated today. The reasons for mandatory shoreland zoning are many, including such goals as preventing water pollution, protecting wildlife habitat, and conserving the scenic beauty of our special places to name a few.

The rules do depend on where the property is located, either organized or unorganized township. Also, what property type you are going purchase, such as an unimproved waterfront parcel or an existing residential structure. Also, please note that every organized town can have slightly different rules depending on the ordinance they have adopted, but all will comply with the minimum requirements. Check in the code enforcement officer (CEO) of the town to get the local ordinance.

For unimproved lots, here are the basics.

  • Minimum Lot Size – For tidal areas 30,000 square feet ( just less than 7/10 of an acre) For non-tidal areas 40,000 square feet (just over 9/10 of an acre)
  • Minimum Water Frontage – For tidal areas 150 feet For non-tidal areas 200 feet
  • Minimum Lot Width – within 100 feet of the high water mark shall be equal to or greater that the required water frontage.
  • Minimum Set Back for buildings – For great ponds and rivers flowing to great ponds 100 feet from the high water mark. For other water bodies, 75 feet from the normal high water mark.
  • Vegetative Clearings – This is a probably the most misunderstood of all shoreland rules. Review the ordinance for formulas to use prior to any harvesting of trees and/or other vegetation and do consult with the CEO prior to beginning to avoid possible fines and other penalties.

If you are purchasing a non-conforming ( AKA “grandfathered”) structure the rules for additions, expansions and other changes can vary a lot depending on the size, setback, height and other features of the structure. All of these changes will at a minimum require CEO approval, commonly planning board approval.

There are many exceptions to the above. This can be a complex topic, so I have provided a link to the Maine Department of Environmental guidelines here should you need additional information.

Maine Subdivision Rules - Should You Develop Your land?

Maine Subdivision Rules - Should You Develop Your land?

In Maine, there is a difference between a division of land and a subdivision of land. In most municipalities dividing your property into two separate lots requires little or no permitting. However, dividing a property into 3 separate lots within a 5-year period does require approval in most cases, and is the definition of “subdivision” in our state.

Increased Property Value

Why would you want to do a subdivision? Most property investors look at the subdivision process as a way to increase the per acre value of their property. At first the thought of a smaller lot being worth more does not make sense, but consider that by reducing the size of the acreage you bring the gross selling price lower and within the purchasing power of more people. More people competing for a property usually translates to more demand and a higher price.

Higher prices may or may not translate into more profits. Before jumping headfirst into a subdivision some research and planning should be undertaken. Market conditions should be the first consideration. Data such as recent comparable lot sales, how many sales have occurred, lot sizes of successful sales, what is the current supply of lots, absorption rates, and financing availability to name a few. Next what will be the costs of surveying, wetland delineation, engineering, road construction, soil testing and other requirements of permitting? After thorough analysis and due diligence a property owner can decide if the risk is worth the reward to subdivide.

Requirements

Every organized town in Maine may have a slightly different subdivision ordinance. The unorganized territories in Maine have a uniform ordinance with little variation in requirements. Typically, a local planning board will review a proposed subdivision to see if it conforms with the ordinance. The process will consist of several meetings starting with a presentation of a preliminary sketch of the proposal. This is followed up with notifications to the public and nearby property owners of the proposed subdivision and the date of the public meeting to review it.

This next hearing consists of a more formal presentation of a preliminary survey plan of the layout of the proposed lots, roads, easements, slopes, soils etc. Public comment is permitted and heard by the board. After this meeting any changes required by the board need to be addressed and another hearing with a final plan will be scheduled. Assuming no other issues are outstanding, the board will sign the final plan that will be recorded in the county registry of deeds.

Exceptions

There are a number of exceptions to the rule to sell property without the process of subdivision. Gifts to relatives (see definition in statute) may be exempt if the donor has owned the property for at least 5 years and the consideration is less than ½ the current assessed value. Sales to abutting property owners may be exempt from subdivision rules. In unorganized territories, 3 lots can be created in a 5-year period as long as the 3rd lot is retained for forest management purposes. This is often referred to as the ‘2 in 5 Rule.’ There are other exceptions listed in the statute linked above.

Summary

This post is intended to encourage a thoughtful process in land investing and should not be viewed as an endorsement to subdivide your property. In many cases I would advise clients not to.  The above descriptions are a simplification of the process, not a complete outline of all potential requirements of every planning board. You are well advised to consult with experienced professionals like real estate attorneys, surveyors, soil scientist, and land brokers before undertaking the subdivision process.

Top 5 Reasons Your Maine Land Has Not Sold

Has your land in Maine been on the market for 6 months, 12 months, 2 years or more? Few showings, no offers and you think that something must be wrong. Well something probably is. Here are the Top 5 Reasons we have identified that get in the way of selling your property.

Price

The number one reason property does not sell is typically a pricing problem. Before putting your land on the market a thorough analysis of the potential uses of the land, recent sale data, competing properties for sale, location issues, property improvements and other factors should be considered in order to price the property competitively for the market. If this is not done correctly from the start the end result is longer marketing time and a below market selling price.

Marketing

Number two on our list is marketing. Determining who the most probable buyer is and then how you reach those prospects is paramount to any good marketing plan.

Selling raw land or properties with a large component of land is not the same as selling a single family home on 1/2 an acre in town. Putting and ad in a local paper, a sign on the property, placing the property in MLS, Realtor.com, Zillo and Trulia can be effective for selling homes but miss the mark for properties with acreage. Take a peek at any of these mediums and you quickly see that they are designed to focus 99% of attention on single family homes. Land is hard to find here and generally not presented in an attractive manner with a low quality tax map or Google Earth screen shot as the opening photo.

Access Issues

How you physically get onto a property has a real effect on buyer interest and general appeal of the land. If your land fronts a busy road or highway and there is no driveway or access road onto the property prospective buyers may have a difficult time seeing the utility of the parcel. Does the land have a clear right of way if it is not on a public road? If not, what can you do to better define the access or right of way? Is your property on a private road that is in bad condition? If any of these situations describe your property, this could be one of the reasons your land is not selling.

Boundaries are unclear

Imagine yourself as a prospective buyer and meeting the owner or real estate agent to see a 50 acre parcel of land. Now imagine you ask them where the property lines are and they tell you "we think they are somewhere around here". Does that statement give you and warm and fuzzy feeling that would inspire you to write a deposit check? I doubt it. Get your property surveyed to add value and shorten the marketing time.

No Owner Terms

If you have not considered offering owner financing terms for the sale of your land, you should give it more thought. Inquiries on our land listings triple when advertised with owner financing terms. It simply opens the property up to a much larger buyer audience. Owner terms often bring a higher price for the property and most owners get interest rates that are attractive as an investment.

If any of these conditions apply to you, this may be the reason why you have not been successful in selling your property. Need more help? Call us today for a professional opinion.

Purchasing Land By Soil Type – Understanding Soil Surveys

When you are in the market to purchase land one important consideration is soil quality.  Your soil considerations should be based on the intended use for the land. Do you want to grow crops, graze animals, manage timber, provide recreation opportunities or conserve wildlife, wetlands and other sensitive features? The higher the soil quality the better crops and trees will grow. These will be better drained sites for constructing homes and cabins as well.

The U.S. Natural Resource Conservation Service (NRCS) has provided a plethora of information online at Web Soil Survey. The online data is complex. Some soil knowledge or basic mapping skills are necessary to navigate this site. We, at United Country Lifestyle Properties of Maine, have made this process easier for our customers and clients through the use of mapping software that simplifies the NRCS data into an easy to understand soil report.

Soil Types

NRCS has identified more than 70,000 soil types in the United States.   Maine has soil types such as Monarda, Dixmont, Howland, Thorndike, Bangor and many others. The types or series of soils will be abbreviated on maps and reports such as Mo for Monarda or Ba for Bangor. Soils are given compound names such as Bangor silt loam. The first part of the name, Bangor, refers to the soil type. The second part, in this case silt loam, refers to the structural texture of the soil. You can find a soil triangle like the one below online to help determine the texture. I’m not going to discuss the various simple to complex testing methods that can be done for soil texture, you can Google search this topic and find a number of articles and videos showing these methods.  Here is a link to a simple jar method. https://hgic.clemson.edu/factsheet/soil-texture-analysis-the-jar-test/  

Capability Classes

Soil types are assigned classes from I to VIII based on their suitability for agriculture. They are also assigned subclasses based on their limitations of e,w,s, and c which stand for erosion, water, shallow or droughty and cold climate.

Capability Classes I – VIII with I being most desirable. Classes I-IV will support most types of cultivation and V-VII do not support cultivation but can accommodate forestry and grazing. Class VIII land does not support cultivation, grazing or timber production and includes cliff faces and other rock outcrops, beaches, river and creek beds.

 

Understanding Soil Code

Looking at a soil type map for the first time is Greek to most people. But with use of the NRCS Websoil Survey or a mapping platform such as Mapright, these codes will become easy to use. So, the next time you see BaC 3e, you can refer to the capability view and know that this is Bangor Silt Loam with 8-15% slopes and the limiting factor to its agriculture productivity is its propensity for erosion. It can be used for growing crops as long as a lot of conservation measures are used. It probably is better suited to grazing and would certainly grow trees very well.

While doing due diligence in the review of a specific property, don’t eliminate it just because it has class IV – VIII soils, they have value, just not to a farmer. Most of Maine has some limitation to its soils from rocks to slopes to bedrock and so on. Class I and II soils with no limitations are rare and expensive.

Limitations

Like most online data, the US NRCS soil mapping has limitations and localized exceptions will be found on most every site. These reports should not be replaced with an on-ground inspection of individual properties. If soil conditions are critical to your intended use of the property, a soil professional should be consulted.

Maine Current Use Tax Programs

Maine has four current use programs to reduce taxes on land that is used primarily for a specific purpose. The four programs are tree growth, open space, farmland, and working waterfront. The following is a brief explanation of each program with links to guide you to more detailed information.


Tree Growth Tax Law 
The most commonly used current use tax program in Maine is the Tree Growth tax program. It may also be one of the most misunderstood. The basis of the program is to assess land of 10 or more acres based on its productive use as commercial timberland. Growing and harvesting must be the primary use.
During 2017, Maine’s Tree Growth tax program came under the scrutiny of the governor’s office as did most 
property tax reductions. It is believed, and probably rightly so, that a significant percentage of the properties enrolled in this program may not be in compliance with the law. In order to be in compliance, your forest management plan needs to be up to date and implemented. If you have purchased forestland in Maine and you have never talked with a licensed forester you may already be out of compliance. Bulletin 19 on the state website provides information for those already in the program and those considering enrolling. The link below is bulletin 19 
Bulletin 19 

Farmland Tax Law
This tax law requires the land to be used for agricultural or horticultural purposes and must be of 5 or more contiguous acres. The land must earn at least $2,000 gross income per year to 
qualify. The owner must file an income statement with the assessor by April 1 of each fifth year, after qualification, for the previous 5 years income of the owner or lessee.
The assessor can use a number of factors to determine farmland values for current use 
including farmer to farmer sales, soil types, land rents, and others. For additional information on this tax law see Bulletin 20 link

Bulletin 20                                                        

Open Space Tax Law
This program provides for a reduced assessed value based on the property being preserved or 
restricted for a public benefit. Qualifying public benefits include recreation, scenic resources, game management and wildlife habitat. The open space program does not have a minimum 
acreage requirement. In open space the tax assessor will reduce the value by either researching sale data of parcels all or partially in conservation or preservation and computing a fair value, or by applying a percentage reduction based on the public benefit or benefits being applied. The reduction, depending on the benefit, can be as high as 95% of the assessed value. See Bulletin 21 at this link. 

Bulletin 21

Working Waterfront
Land that qualifies for this current use tax treatment is for land on tidal waters or in the 
intertidal zone used at least 50% for access or support of commercial fishing activities.
The assessed value reduction varies from 10%, 20% or 30% depending on the percentage of use and potential deed restrictions for use. See all the details on the state site for Working Waterfront Q&A at: https://www.maine.gov/revenue/forms/property/pubs/workingwaterq&a.htm

Moving Sideways 
If you desire to change the use of your property under any of the first three laws above you can avoid any penalty for that change of use. Property changed from farmland to open space, farmland to tree growth, open space to farmland, or open space to tree growth will not be 
penalized if a parcel also meets eligibility requirements of the new classification. 
 

         

Maine Forest Service Land Owner Assistance

Most Maine citizens and landowners think fire prevention when they consider the Maine Forest Service. They do a great job of that, but they do so much more. The district foresters have many duties and one of them includes consultations with owners of Maine woodlands to help them better understand and manage their woods.

District foresters will spend time in the field with landowners and advise on proper forest management. They will tell you about programs that can include cost sharing on some silvicultural practices and land improvements.

Check out this link below to find the district forester near you and the many other services through the Maine Forest Service.

http://www.maine.gov/dacf/mfs/index.shtml

Comments

  1. No comments. Be the first to comment.

2016 Waterfront Land Sales Big Improvements

What a difference a year has made for Maine waterfront. Coming into the end of 2016 it appears that the waterfront land market is heading in the direction of a sellers market. The indicators are a 20% increase in the number of waterfront land sales in the past 12 months as compared to the 2015 numbers and an average market time reduced by nearly 50 days . Depending on the part of Maine you are in you are seeing prices, that were flat in the beginning of 2016 caused by an excess of inventory, now starting to creep up a little.

Factors in our markets contributing to the increase in sales are a combination of a number of things. Asking prices being lowered by sellers who have realized that the values of the mid 2000's are in many cases unobtainable, low interest rates offered by some of Maine's land lenders and owner financing increasing in popularity.

We are seeing new lakefront, riverfront and other waterfront parcels in both approved subdivisions or divisions of existing properties coming into the market. Strong interest from buyers both prior to and after the presidential elections leads me to believe that waterfront prices will continue to increase slightly in 2017 assuming that inventories continue to dwindle.

Is it time to sell your land? All market areas are different, give us a call and we can give you an idea what your property might be worth on the market today.

To Post or Not to Post Your Maine Land

Maine has a long tradition of landowners allowing reasonable public access to private lands. As a Mainer I want to thank all of those land owners who allow this. I do not post my land as we also enjoy using lands of other landowners who also allow access for recreation on their lands.

If you wish to keep your land for your own use, Maine does protect the landowners rights to privacy. Title 17A Section 402 explains how the landowner must post their land with signs or paint to legally restrict access over their property. Signs or paint must be within 100 feet apart and be visible so that a potential intruder can see the restricted access. Signs must be specific as to the restriction ie. no trespassing, access by permission only, no hunting etc.

Painting is the easiest way to post your land, a vertical purple painted stripe 1 plus inch wide on trees 3-5 feet above the ground means access by permission only. These stripes need to be no more than 100 feet apart and need to be maintained so that they are conspicuous to any person who may approach your boundary lines.

A verbal warning to a trespasser is also a legal means of enforcing your property rights. If you confront a hunter on your land you have the right to inspect their hunting license to determine who they are, if they refuse they have violated Maine law. If convicted they can loose their hunting rights for a year and possibly forfeit their firearms to public auction.

If a hunter wounds a game animal which then enters your property the hunter does not have the right to enter your property to retrieve the animal. If you are concerned about the access please contact the local game warden and allow the hunter to retrieve the animal to prevent the waste of the game.

We are often asked by landowners that if they post their property to restrict access if they can still legally hunt their property. The answer is yes. The landowner does still need to purchase a Maine hunting license and abide by all applicable hunting rules and regulations. We are also asked about landowner legal responsibility for keeping their property safe for recreational users. The answer is no as long as you do not willfully or maliciously fail to guard or warn against a dangerous condition, use, structure, or activity.

We hope this helps Maine land owners manage the land they way in which they want to. To understand that if they wish to keep it for just themselves that is a right that they are entitled and protected. For those who leave their land open for public use this Mainer and many others say thank you and respect your property rights.

 

How To Get a Maine Property Tax Abatement

The mention of property taxes often stirs controversy among our citizens. The fact is most of us in some way use the services that tax money pays for from educating our children to keeping infrastructure maintained. If you do not agree with how the money is spent get more involved in the process. This post is for those who think they are being unfairly taxed for the property they own in Maine not for a philosophical discussion about the pros and cons of our current tax system.

The Maine constitution requires that taxes on property be based on just value and fairness. Just value is usually considered fair market value. Fairness is determined by how all property owners are treated as a group. To challenge a perceived excessive property tax the land owner in Maine has options for relief.

A potential option for abatement is to challenge how the tax assessor determined the property's value. Get a copy of your tax card from the town and review the methodology of the assessor. Compare the valuation of your property to a recent appraisal and/or review recent sale data of similar properties. If you see a big discrepancy in current market value compared to the assessed value you may have grounds for abatement.

Another option for abatement is to prove that your property is being assessed unfairly. Similar to researching just value, the taxpayer must do research before requesting the abatement. What you need to look for are a number of similar properties with large difference in valuation. The tax assessor is allowed some variations as it is not practical to fully analyze every property in the town every year. To have success you need to show that your valuation is more than the average of similar properties. If just one or two properties are found with slightly higher or lower valuation you probably do not have a case for abatement.

If after your review of all this data you are convinced that your property is being taxed unjustly or unfairly you should meet with the tax assessor to discuss the difference. If you can convince them of the error in just valuation or fairness, they may adjust the valuation to reflect your findings. This should be done before the taxes are committed for the tax year as assessors will most likely refuse to adjust any valuations after that date. If they do refuse your request and you are convinced you are right a more formal request will be necessary.

Under Title 36 MRSA, Sections 583, 706, 841-849 and 1118 a Maine property owner who thinks their taxes are higher than they should be can file a formal application for abatement of property taxes with the local assessors within 185 days after the tax was committed to the tax collector. You can find more details on the process online at https://www1.maine.gov/revenue/forms/property/pubs/bull10.pdf

Comments

  1. William R Brown on

    Thank you, McPhail Brothers, for the timely tutorial, i will refer to the information before taxes are due, hopefully. Cheers, from william Monday, March 28th, 2016