Chapter § 9.7 Tax Benefits

• Jurisdiction: Washington

§9.7 TAX BENEFITS

Tax considerations are an integral part of all real estate transactions, but they are particularly important in PDR, TDR, conservation easements, and land trust programs, because tax incentives motivate many of the transactions. As a general matter, Washington recognizes conservation easements as real property and requires excise tax payment as with any transfer of real property. RCW 64.04.130. Beyond this, however, only a brief overview of several important tax provisions follows. A detailed review of each transaction for tax issues will be necessary to identify the potential tax issues, including excise taxes, I.R.C. §1031 exchange possibilities, securities regulations, and the effects of local regulations.

(1) Washington's Open Space Tax Act

Washington has a deferred taxation program known as the Open Space Tax Act (OSTA), Chapter 84.34 RCW. Under this program, farm and agricultural land, timber land, or open space land may receive property tax relief subject to satisfying certain eligibility criteria. Participating lands are taxed on their current-use assessment rather than market-value assessment. A capitalization of net income is used to determine the current-use assessments. Land must be enrolled under OSTA for at least 10 years. With the proper notification, land withdrawn from the program is subject to a seven-year rollback tax. If the proper withdrawal procedure is not followed, the landowner is charged an additional penalty equal to 20 percent of the rollback tax. OSTA was amended in 1992, and it now has no death exemption from withdrawal penalties; efforts in the legislature to reverse this have thus far not...