HELP! My land parcel is losing value: by the year ... by the month ... by the day and by the hour. After all this hard work and effort to bring it up to its current value, the market evaporated: What do I do now? This is the single most common question that people present me with every day. It happens in great markets, bad markets and average markets: Land values can fluctuate. With the exception of zoning and improvements you've made as an owner, it's generally the marketplace's decision to set the value for your land at any given time.

It was a couple years back, when I first started having in-depth discussions with folks in the industry about donating property to municipalities in exchange for tax credits. With each year that passed, what was once a cottage industry has now become an entire marketplace that, generally speaking, is accounting for a huge portion of land transactions nationwide.

In this article, I'm going to walk you through the benefits to municipalities, landowners, and of course, people that buy these credits in the first place. Please note: This is a very sophisticated sale. I've talked to dozens of companies that claim to do this, but to date, have only worked with two. Don't jump into this blindly. As always, I'd love to hear from people that might need help or advice, but with today's column please remember-I'm not an attorney, much less a legal or tax professional.

WHY DO PEOPLE BUY TAX CREDITS IN THE FIRST PLACT?

Mostly because they have an immense amount of money owed to the government. In doing this, they save a great deal on their tax burden. These tax credits are purchased for less than the full amount of the tax burden and can be used to cover the taxes owed. You might ask, "Is there even such a marketplace for this?
Yes. There are many tightknit groups of CPAs, attorneys and wealth management professionals that actively seek these credits. It's important to note that in the sales I've worked with, they had a turnkey package: from relationships with municipalities to the people wanting to purchase the tax credits. This will save you time and money while minimizing your risk. Working with a turnkey company is crucial as the guidelines on every part of the transaction are complex and change every year. Expertise in federal land trusts-along with an appraiser and an environmental engineer familiar with tax credits on their end-will literally make or break a deal.

WHAT DOES IT TAKE?

Local governments are crucial to the equation and having a parcel that is valuable to them is extremely important. The tracts of land near larger municipalities are the best sites for optimizing tax credits value. The main reason is because the land has to have comparative values in a much higher range than normal in order to get the tax credits needed to move forward. Here's the kicker-the clock is ticking and many industry professionals believe this might be the peak of the tax credit swing. The political environment in the federal government is extremely volatile, and this is a process that thrives on what little stability they can get their hands on. Regardless the federal government has made this most beneficial if completed by the end of 2007. As if the clock ticking wasn't enough, some other major pitfalls lie as follows:

1) The property may not appraise for enough to cover the purchase price plus expenses and leave enough for profits.

2) You may not find buyers for the tax credits in an expedient manner, and these tax credits may expire and/or lose value with time.

3) Local municipalities may not entitle the land for purposes that would add enough value to the parcel to make these deals profitable, etc. This is yet another reason a team that understands the process should oversee these deals.

WHAT LAND WORKS BEST?

If there's one constant in the process it's this: The larger the tracts of land, the better. It's that simple. The pieces should not be wasteland; rather, they should be land that can be optimized as a park or recreational land. Parts of the plot should have homes or be sold as homesites, and roads should be placed on the land to optimize the land's value as tax credit land. Others might have different takes on how to optimize parcels, but this has consistently been my experience with these deals. It's important for a variety of reasons, one of which is creating a comparable value to the remainder of the land. The land's appraised value and its ability to hold up to scrutiny is instrumental to the success of creating the tax credit. The basic equation is that if the property is appraised at X, then you donate the land and in turn receive a percentage of X's value in tax credits. Those credits, in turn, are shopped and sold to buyers who need to offset their tax burden. It may seem simple, but trust me, it is complex and tough to get a parcel that is a perfect fit. But when it works, it's an incredible process that can be done in a matter of weeks.

Finally, some readers might say, "I don't own a parcel, but I know of some-or have an option on one that would be ideal for this scenario!
Well, I'd say do your research, and be in touch. In many cases, these deals are about proximity and knowing the local market. From there, partnering with a group that has a substantial track record and offers consulting in every step of the process is the only way you'll get this accomplished in 2007. Remember, this is rewarding but a very sophisticated sale.

Will Hutson is vice president of the LFC Group of Companies, working with both commercial and residential land and REO product types. Hutson writes on real estate, technology, media and government. A 5th generation Floridian who attended the University of South Florida, now resides in Newport Beach, Calif. Feel free to contact him at 949-706-6117 or via email at whutson@lfc.com.