Many owners of real estate in coastal Maine are facing dramatic increases in their property taxes as a result of municipal revaluations, especially those with shorefront or a water view. Some families are questioning in light of higher taxes whether they can afford to continue to live in their coastal communities. One consequence of the departure of long-time residents would be increased development pressure and the attendant loss of wildlife habitat, open space, and scenic views.
There are several easy ways to reduce one’s real estate tax liabilities. The potential tools fall into two general categories: conservation easements, and the current use taxation program. Although not appropriate for everyone, for those who also care about their land, these tools have the two-fold advantage of both saving taxes and preserving important habitat and scenic open space that otherwise might be lost forever to development.
A conservation easement is a legal agreement, in the form of a deed, between a landowner and a land trust or government agency permanently limiting a property’s uses. The property remains privately owned and public access is not usually required. By limiting development rights (for example, restricting a large parcel to only one new house), the land becomes "less valuable" for taxation purposes. The landowner must generally show that his or her land has some public benefit or value which will be protected by the conservation easement, such as wildlife habitat, public access for recreation, and/or preservation of scenic views from the water or a public road.
There are three general types of easements: limited development easements (for example, limiting the number of new houses), resource management easements (restricting uses to forestry or farming only), and “forever wild” easements (no active management except trail maintenance). Generally, the more restrictive the easement, the greater are the property tax savings. The municipal tax assessor is required by law (36 M.R.S.A. Section 701-A) to take the use restrictions into account when assessing the just value of lands, and most assessors are very familiar with the proper procedure. Conservation easements also may provide the donor with potentially significant savings in estate and income taxes. The difference in value of the land before and after the conservation easement (as established by an independent appraiser) constitutes a charitable donation for Federal and State income tax purposes, and the value of the donor’s taxable probate estate is reduced.
The second tool is Maine’s current use taxation program. This statutory program focuses on the current use of the property and rewards land owners who conserve farmland, open space, or forests. No permanent deed is involved. The three current use classifications available under Maine law are: Farmland, Tree Growth, and Open Space. Significant tax reductions can be achieved using these programs. However, the statutes have strict qualification requirements (for example, for Tree Growth you must have a written forest management plan providing for some future commercial harvesting), and there are heavy penalties imposed when land is withdrawn (upon sale for development or other inconsistent use). Current use classification provides no estate or income tax savings and does not by itself result in permanent protection of the property. To maximize the tax benefits of the Open Space classification, a permanent conservation easement should also be used since that will increase the assessed value reduction from 20% (for ordinary Open Space) to 50% (for permanently protected Open Space) or 70% (for a “forever wild” easement). If the easement includes public access, there is an additional 25% reduction.