By Paul D. Spillers
A good wildlife management plan provides more than just recreation and pleasure. Wildlife can add value to your land investment and tax savings. Astute landowners are learning the Tax Code provides for tax deductions that can put more money in your pocket each April 15th. A real world example illustrates how a landowner can enjoy his land and save tax dollars while his investment increases in value.
MR. ROBERT SPARRE:
In 1961 Mr. Robert Sparre purchased a 191 acre farm in Kent County, Maryland for $24,000.00. The farm included a house in bad repair, a barn, shed, dilapidated outbuildings, and old fences. The land had been previously farmed, except for 40 acres of trees, a 7 acre pond, and some gravel pits. The hilly land was infertile. It had a very low Ph and was deficient in nutrients. The land bordered on a small creek running into Chesapeake Bay and had the potential to attract ducks for hunting.
Mr. Sparre’s purposes for buying the farm were: 1) to have a retirement home when he reached retirement age; 2) provide a supplemental source of income from hunting fees; and 3) profit from the expected long-term appreciation in the value of the land. When the land was purchased he was an engineer living in Delaware, two hours driving time away.
Mr. Sparre’s activities on his land produced consistent losses for almost 20 years. The losses averaged about $15,000.00 per year. His total income from engineering averaged about $40,000.00 per year. Mr. Sparre made extensive efforts to seek the best available advice from various consultants on how to maximize profit from his land and his wildlife activities. He had soil tests performed and added fertilizer and lime and other needed nutrients. Food plots were established in an effort to attract waterfowl and upland game. Waterfowl was raised for release on the property. Revenue from hunting fees was minimal, though it gradually increased over the years. The house was repaired. Hunting revenue increased when Mr. Sparre started providing lodging and meals to the hunters. Despite his best efforts, however, the expenses were always greater than annual income from the farm. Tax losses were deducted and reduced the amount of income taxes he paid. Despite the consistent losses, Mr. Spare continued his efforts to make money on his investment.
The IRS finally reviewed Mr. Sparre’s tax returns and, considering the consistent losses, concluded he was operating his land as a hobby, or personal pleasure, and not for a profit. The IRS disallowed all deductions associated with the land. However, Mr. Sparre disagreed with the IRS and asked the Tax Court to review his case. The Tax Court agreed with Mr. Sparre and rejected the IRS’ position. The Court held that he had the “intent to make a profit” and the losses were all deductible. Sparre vs. Commissioner, T.C. Memo, 1980-45.
The Tax Court agreed with Mr. Sparre that many years of losses were predicted when the land was purchased. Mr. Sparre made the investment knowing that he would have to endure the cost of improving the land over many years and creating a good wildlife habitat before he could sell and realize a profit from his investment. Mr. Sparre maintained detailed financial records that were given great weight by the Court. He had sought the best available advice from legitimate experts about alternative ways to earn income from the land, including wildlife management, food plots and forest management.
At the time of the trial the fair market value of the property, because of price appreciation was more than double the aggregate tax losses that had been claimed by Mr. Sparre. Appreciation in the property’s value more than covered the aggregate losses. The Court also noted that the losses were a large percentage of Mr. Sparre’s annual income from engineering. The losses, compared to his income, made it clear that the farm was a real financial burden, providing an even greater incentive for Mr. Sparre to manage it to produce a profit when the property was ultimately sold.
This case illustrates that a recreation enthusiast is not necessarily barred from tax savings by the hobby loss rules. If a landowner has a sincere and bonafide intention to make a profit, activities related to wildlife habitat and land improvement can yield substantial income tax benefits. However, it is critical that the activities be conducted in a business-like manner, including the maintenance of detailed records and obtaining advice from recognized experts. When motivated by profit, and not something done solely for fun, the Tax Code will yield valuable deductions and tax savings. Before embarking upon what can be not only a pleasurable, but profitable, venture consult with your tax advisor. Your advisor can provide necessary, and valuable, guidance.
Paul D. Spillers is a Board Certified Tax Attorney who practices with the firm of Theus, Grisham, Davis & Leigh, LLP, Monroe, Louisiana. He also is a land and timber investor and has an appreciation for wildlife and its management. He may be contacted at 318-388-0100 or at email@example.com.
*** Mr. Spillers has been a client of RecLand Realty, is a landowner and is active in the forestry industry in the south. www.RecLand.net
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Making and executing a modest plan to add or improve the overall access to hunting land for sale will help it sell quicker and likely allow it to be be sold for more money.
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I still call her my baby even though she’s half way to sixteen. Man, where did those eight years go? Well allright, enough sulking over the fact my sweet pea is growing up too fast and on with the story.
Raylee is your typical, energetic, outgoing, country to the bone, little farm girl. She has always liked going to the camp, hunting with Dad and has been doing just that since she was two years old. She’s a crack shot with a .22 and got her very own for Christmas this year. We’ve also had a Remington 700 Youth 243 with her name on it, just waiting for her to grow into it.
Raylee was determined, going into this past season, that she was going to kill a deer. So my part was to do everything I could to make that happen. We spent the off season keeping feeders full, planting food plots and making sure all the stands were ready to go. But being the somewhat over protective Dad I am, the closer season got the more nervous I got. Reason being was that I started thinking about that 243 kicking or as she says “bucking” a little too much and the scope hitting her in the face. I’ve been told by my better half that I have a tendency to worry too much, plan too much and way over analyze things and that’s just what I started doing…thinking. I thought maybe it would be better if I put her in a pop up blind closer to the feeders with an open sight 30-30. That way there would be no scope to hit her in the face and we would be close enough she would surely be able to hit something. As season quickly approached, I was still fretting and analyzing my final game plan that would insure my daughter could seal the deal on her first deer. Needless to say all my worrying and planning would not make a bit of difference in Raylee killing her first deer.
My family and I spent most of the summer getting ready and getting excited for hunting season to open. It was finally here, Opening Day of the 2009 Gun Season. But instead of having my baby girl in the stand with me and my wife Bridgette out there with our 4 year old son Morgan, I was sitting there in the stand alone. All because I was selfish enough to think I deserved opening day all to myself. Well things could not have happened any better that evening to teach me two valuable lessons.
Since no one was invited to hunt with me opening day my wife decided she would just take Raylee herself on some land adjacent to our house. There was very little thought that went into their hunt. There was no worry about the gun kicking or the wind direction or anything else I would have been intent on thinking about. They didn’t go to the food plots or the feeders and they weren’t even in a blind. They just went hunting together. They walked from our house down our long driveway with Raylee singing and skipping all the way. They sat on the ground just off our drive way on a pipeline. Raylee was on the ground right beside Bridgette so she could help hold the shooting stick for her. Those two were visiting and laughing and sending me texts and pictures. They weren’t there very long when Raylee spotted a small buck that was way too far away to shoot. Raylee was thrilled that she had spotted this buck “all by herself.” Not 30 minutes later, wouldn’t you know it, at about 5:00 I got a call from one of the most excited and proud, parents you’ll ever hear telling me that our daughter had just shot her first deer. So I got off my stand at the lease and almost cut a 30 minute drive in half getting home to see. Raylee was still so happy and excited she couldn’t stop crying and was talking ninety to nothing trying to tell me the story. Once she calmed down they showed me where they were sitting and 110 yards down the pipeline, there it was my baby girl’s first deer.
What an awesome experience, that I didn’t get to share with my little girl, for two reasons. First and foremost I was selfish. I wanted to be in my own little part of the world by myself. Second, if I had been there I would have probably over analyzed and over thought things. I would not have been on that pipeline at that appointed time because that was just too simple.
So guys, the first lesson learned, is that life is too short and your kids grow up way too fast. You should strive to be involved in their lives and to be a part of all those precious moments. Second lesson is that God’s will and perfect plan is always better than even our very best.
“For I know the plans I have for you declares the Lord, plans to prosper you and not to harm you, plans to give you hope and a future.” Jeremiah 29:11