Donald Trump, Seven Springs and his $21 million tax deduction draw scrutiny
Tax Watch columnist David McKay Wilson takes a closer look at Donald Trump's taxes in Westchester County.
As real estate mogul Donald Trump pursued the Republican nomination for president in late 2015, he used federal tax laws to his considerable advantage at the 220-acre estate called Seven Springs that he'd purchased 20 years earlier.
He put much of the land under a conservation easement worth $21 million, which was part of the strategy that may have helped lower the self-proclaimed billionaire’s federal tax bill to just $750 in 2016 and $750 in 2017, according to a recent New York Times investigation.
The tax deal involved an easement on 159 acres of the estate’s land in Bedford, North Castle and New Castle, with Trump giving up development rights for as many as 45 homes. The $21 million deduction, when fully realized, could result in tax savings of as much as $10 million for someone like Trump, in top state and federal tax brackets, a Tax Watch analysis found.
Those savings were $2.5 million more than he paid for the entire estate in 1995.
TESTIFY: Eric Trump must testify in AG probe
BRANDING: Dueling Trump brands clash in Westchester
TAX CUT: Trump seek reduction in assessment at Trump National in Briarcliff
Seven Springs LLC, which owns the estate, is part of the Trump Organization, the sprawling family business that includes golf courses, hotels, office buildings and management of condominiums like Trump Plaza in New Rochelle and Trump Tower in White Plains.
Seven Springs is also an enterprise that highlights the confluence of the business and the Trump inner circle’s personal life.
The estate, which the Trump Organization’s website calls “a retreat for the Trump family,” is owned by the corporation, which can deduct property taxes as a cost of doing business.
Taxes on the estate are considerable – $464,000 in 2019, including a bill for $266,000 on the parcel in North Castle with the 60-room mansion with a marble swimming pool built by Eugene Meyer, the former publisher of the Washington Post.
Trump once had huge dreams for Seven Springs – an 18-hole golf course on the bluff above Byram Lake Reservoir, which serves the village of Mount Kisco, and 15 top-of-the-line homes. But he met a buzz-saw of opposition from environmentalists who feared contamination of the water supply, and congestion on the narrow country roads.
When the dust had settled after more than a decade of litigation, Trump ended up with approvals for seven homes in Bedford. The environmentalists won there, too. Trump finally bundled land from the subdivision into the conservation easement, which was given to the North American Land Trust to protect the land in perpetuity. There's 95 acres of mature hardwood forest over 100 years old and 52 acres of meadow, a place where northern flickers and chipping sparrows stop on their migratory path.
Most important, the easement protects streams at the headwaters of three tributaries that feed Byram Lake and the New Croton Reservoir.
How much of the deduction was applied to Trump’s personal income-tax liability was not disclosed in the Times investigation. Seven Springs LLC is one of Trump’s many limited liability corporations, currently run by the Donald J. Trump Revocable Trust, according to his federal financial disclosure statement.
His 2020 financial disclosure report indicates that Trump is a 99% owner of Seven Springs LLC.
Deductions and tax savings
The magnitude of the charitable donation is currently the subject of an investigation by New York Attorney General Letitia James, to determine if Trump has inflated the value to increase his tax savings. On Sept. 23, a state Supreme Court justice ordered Trump’s son, Eric, to testify under oath in the matter.
The Trump Organization in the past has maintained that James’ investigation was part of New York's harassment of the company, which was motivated by politics. Calls to the company were not returned.
The use of conservation easements to reduce one's income taxes exploded in 2015 after Congress enhanced the financial benefits for protecting undeveloped land, to help farmers and ranchers who were land-rich, but income-poor, said attorney Tim Lindstrom, author of the 2008 book, "A Tax Guide to Conservation Easements."
At the time, landowners were able to deduct the value of the easement over five years, with the deduction allowed for up to 30% of their adjusted gross income.
That benefit didn’t do much for farmers and ranchers with hundreds of acres of land, but little income to shelter with the deduction. In 2015, landowners could spread it over up to 15 years, with the deduction allowed for up to 50% of the donor’s adjusted gross income.
“It was a huge step forward for ranchers and farmers,” Lindstrom said.
The enhanced conservation easement law sparked widespread abuses, with speculators forming syndicates to sell the tax savings in questionable arrangements that were the subject of a U.S. Senate Finance Committee investigation in 2019. The value of conservation deductions grew from $6.8 billion in 2016 to $9.2 billion in 2018. Some of the deals were based on wildly inflated land values, said Lori Faeth, government relations director of the Land Trust Alliance, of Washington, D.C.
“The abuses have been aggressive,” she said.
She warned that each deal stands on its own, with authorities focused on the validity of land appraisals that determine the value of the development rights.
The appraisal at Seven Springs was conducted by Cushman & Wakefield, the national commercial real estate company currently marketing office space at Trump Tower in Manhattan. The company valued the entire property at $56.5 million, with the development rights worth $21 million, according to the Times.
A Cushman & Wakefield spokesman declined comment, citing the AG’s investigation.
The enhanced conservation easement statute also helped high-income landowners like Trump, who had a goodly chunk of taxable income they’d rather not pay taxes upon.
If Trump had taxable income of $42 million in 2016, he could have erased half of his tax liability with the easement deduction.
Where is the land
The Seven Springs conservation lands are located in Bedford, 59 acres; New Castle, 29 acres; and North Castle, 71 acres.
Local town assessors have valued the estate, which includes at least five houses, at about $18 million. But those values look at the property’s current usage, with so much of the land undeveloped fields and hardwood forest.
Even the approved Bedford building lots aren’t assessed as individual parcels because Trump has yet to file the subdivision plat with local authorities, said Bedford Assessor Harold Girdlestone.
Under federal law, landowners can base their tax deduction on the value of the land’s development rights, at what’s called the “highest and best use,” said Lindstrom. That would depend on how much building local zoning would allow, and what the land would be worth if it was put on the market for those purposes.
The easements in Bedford and North Castle were on land with four-acre zoning while the New Castle land, located in an environmentally sensitive area, had two-acre zoning. If Trump was able to obtain subdivision approval for the maximum number of lots, he could build up to 45 homes. That would put the value of each lot at about $480,000, which is within the range of building lots in Bedford, said Girdlestone.
For comparison, in New Castle, the Chappaqua Board of Education had attempted to sell a six-lot subdivision for $3.5 million – about $583,000 per lot. But the district pulled the land off the market after this summer, with no word yet whether it plans to try again.
Follow David McKay Wilson on Facebook or Twitter @davidmckay415. Support local journalism with a subscription.
This article originally appeared on Rockland/Westchester Journal News: How Donald Trump took a $21 million tax deduction at Seven Springs
