Building a barn - without a house

[OneTwoMany]

@soloudinhere

There is no zoning in favor of or preventing horses in the town in question. As far as the accessory structure, nobody can find anything that says you have to have a residence, just if you do there has to be so much clearance etc. This is a rural area with relatively few covenants and restrictions on property use.

We are also in a rural area.

When we purchased our land about 17 years ago, our town code did not specifically stipulate a residence was required in order for an accessory building to be erected. However, when it was time to go to the town to ask for a building permit for the barn, the town, when interpreting their own code, decided that a residence was required.

Obviously every town is different, but it is something to be aware of, i.e. if the code is vague, sometimes the town can interpret it as they see fit.

For anyone buying a new property that they hope to develop themselves, it may be a good idea to get things in writing from the town before plunking down the money to purchase the property.

[Palm_Beach]

You know, you can always build a nice tackroom with a bathroom, sink and fridge and space for a cot (or sofa bed) in case you do need to spend the night at the barn.

[soloudinhere]

@Palm Beach

You know, you can always build a nice tackroom with a bathroom, sink and fridge and space for a cot (or sofa bed) in case you do need to spend the night at the barn.

Actually this is the one thing we won’t do as any sort of residential features such as a bathroom may classify the whole building as a residence and we would be taxed on a 21,000sq ft house.

[Palm_Beach]

@soloudinhere

Actually this is the one thing we won’t do as any sort of residential features such as a bathroom may classify the whole building as a residence and we would be taxed on a 21,000sq ft house.

Yikes!!! I can’t imaging being at the barn all day without a bathroom.

[soloudinhere]

@Palm Beach

Yikes!!! I can’t imaging being at the barn all day without a bathroom.

Very common here. I have boarded at one barn with a working bathroom. All the rest have never had one. You pee in a stall like any normal horse person.

[Palm_Beach]

@soloudinhere

Very common here. I have boarded at one barn with a working bathroom. All the rest have never had one. You pee in a stall like any normal horse person.

:eek: What if someone walks by or needs to come into the stall to fill a water bucket or toss hay in? Is there some kind of sign you hang on the stall door?

ENTER AT YOUR OWN RISK

PROCEED WITH CAUTION

DANGEROUS CURVES AHEAD

SLIPPERY WHEN WET

[soloudinhere]

@Palm Beach

:eek: What if someone walks by or needs to come into the stall to fill a water bucket or toss hay in? Is there some kind of sign you hang on the stall door?

ENTER AT YOUR OWN RISK

PROCEED WITH CAUTION

DANGEROUS CURVES AHEAD

SLIPPERY WHEN WET

I mean you don’t do it when there’s 15 people outside…but 95% of the time I’ve been the only person on the farm at any given time. I don’t think this is that abnormal.

[js]

Make sure there is a clear title and no back taxes are due. Do heed everyone’s advice to check zoning about building any type of structure, not just residential.

before you invest be 100% sure you will be happy having your barn and horses 3 miles from your home.

[clanter]

@soloudinhere

Actually this is the one thing we won’t do as any sort of residential features such as a bathroom may classify the whole building as a residence and we would be taxed on a 21,000sq ft house.

I would question that as the tax should be on livable square foot to be determined a residence… even so, the remainder is unimproved

Talk with the local taxing authority get their ruling in writing, just don’t take a verbal response

[Palm_Beach]

@clanter

I would question that as the tax should be on livable square foot to be determined a residence… even so, the remainder is unimproved

Talk with the local taxing authority get their ruling in writing, just don’t take a verbal response

IKR - I would not agree that a bathroom makes it a residential space, but then when to zoning and tax regulations make sense?

[clanter]

@Palm Beach

, but then when to zoning and tax regulations make sense?

two completely different animals, often in different barns too

property taxes at least here are based upon compatibles. The taxing district has an amount that needs to be collected that is supposedly divided out on an equally compatible bases … some area/states use the insurance value thus causing some residents to not insure or under insure some homes/structures

zoning laws are supposed to be for the greater good and welfare of the districts residents

[Guilherme]

Clanter has given you some extraordinarily good advice.

You need a lawyer to figure out what the trust can and can’t do. Assuming that transfer to you is within the authority of the trustee for the amount stated* then you can take title.

From your story it seems the parcel is “land locked?” Depending on your state that can affect the whole matter from making it unlawful to transfer the property without access to a public road to giving you the power to force access across the property that would give you the shortest route to a public road. That last thing will require you to sue a neighbor to get the easement you need if the neighbor will not grant one by negotiation. THAT will usually guarantee generations of bad blood in the neighborhood. Lots of reasons you need a lawyer to carefully review this process.

A real ag lender, like Farm Credit, will generally lend for ag structures on bare land. It’s what they were chartered to do! But they have to take into account the credit score of the borrower as well as the “lay of the land” in making a financing decisions. Their interest rates are higher than nominal residential rates because they take more financial risk in what they lend on. They will be limited to a percentage of the value of the bare land in making a loan to build a structure. After you build you can refi and maybe do better. You should talk to them because they know a lot about this and may tell you point blank that it’s a bad idea, if it’s really a bad idea. Pay attention to what they tell you because they generally DO know what they are talking about.

Intra-family transfers of assets are a great way for lawyers to make money as they are often done “in house” without the benefit of professional advice. (Ask me how I know this! ). This is one area where an ounce of prevention is worth a TON of cure. This can be a good deal for you and it can mean years of costly litigation with family, zoning authorities, the IRS, etc. Get help first.

Good luck in your program.

G.

*For purposes of Contract Law consideration stated “for One Dollar and other valuable consideration” satisfies the Law. But for purposes of the Tax Man it doesn’t. There are transfer taxes levied by the state and local authorities as well as the IRS. All will look at the fair market value of the property and tax you accordingly. Local and state transfer taxes are usually not too bad, particularly for ag land, but the IRS is another story. They will look at the fair market value and assess that against you generally in the year you take title. You don’t say where you are so lets assume the value of this acreage (bare, questionable access) is $3000/acre (not an unreasonable price). That means the IRS can assert you received a taxable benefit of $71,999. If they claim this is a gift then you will taxed at the gift rate. That might be a very unpleasant surprise. If they don’t do this your basis for the land is $1.00. That means on sale you will be liable for the difference between $1 and whatever you sell for (which may or may not be a capital gain, depending on tax law at the time of sale). It’s one of those “you can pay me now or you can pay me later” things. And another good reason to have a lawyer set this up for you.

[soloudinhere]

@Guilherme

Clanter has given you some extraordinarily good advice.

You need a lawyer to figure out what the trust can and can’t do. Assuming that transfer to you is within the authority of the trustee for the amount stated* then you can take title.

From your story it seems the parcel is “land locked?” Depending on your state that can affect the whole matter from making it unlawful to transfer the property without access to a public road to giving you the power to force access across the property that would give you the shortest route to a public road. That last thing will require you to sue a neighbor to get the easement you need if the neighbor will not grant one by negotiation. THAT will usually guarantee generations of bad blood in the neighborhood. Lots of reasons you need a lawyer to carefully review this process.

A real ag lender, like Farm Credit, will generally lend for ag structures on bare land. It’s what they were chartered to do! But they have to take into account the credit score of the borrower as well as the “lay of the land” in making a financing decisions. Their interest rates are higher than nominal residential rates because they take more financial risk in what they lend on. They will be limited to a percentage of the value of the bare land in making a loan to build a structure. After you build you can refi and maybe do better. You should talk to them because they know a lot about this and may tell you point blank that it’s a bad idea, if it’s really a bad idea. Pay attention to what they tell you because they generally DO know what they are talking about.

Intra-family transfers of assets are a great way for lawyers to make money as they are often done “in house” without the benefit of professional advice. (Ask me how I know this! ). This is one area where an ounce of prevention is worth a TON of cure. This can be a good deal for you and it can mean years of costly litigation with family, zoning authorities, the IRS, etc. Get help first.

Good luck in your program.

G.

*For purposes of Contract Law consideration stated “for One Dollar and other valuable consideration” satisfies the Law. But for purposes of the Tax Man it doesn’t. There are transfer taxes levied by the state and local authorities as well as the IRS. All will look at the fair market value of the property and tax you accordingly. Local and state transfer taxes are usually not too bad, particularly for ag land, but the IRS is another story. They will look at the fair market value and assess that against you generally in the year you take title. You don’t say where you are so lets assume the value of this acreage (bare, questionable access) is $3000/acre (not an unreasonable price). That means the IRS can assert you received a taxable benefit of $71,999. If they claim this is a gift then you will taxed at the gift rate. That might be a very unpleasant surprise. If they don’t do this your basis for the land is $1.00. That means on sale you will be liable for the difference between $1 and whatever you sell for (which may or may not be a capital gain, depending on tax law at the time of sale). It’s one of those “you can pay me now or you can pay me later” things. And another good reason to have a lawyer set this up for you.

At the moment, we are in the process of “buying” the land on a held mortgage from the realty trust. We will make “interest” payments, thus making it a legal purchase for consideration, and the trust will “forgive” $15,000 per year of principal to each of us for three years until the loan is satisfied.

the property is indeed land locked. There is a cut that is wide enough for a driveway but not a road. At least one house is built close enough to the property line that we could not seize land from them without violating setback.

There will be bad bad blood anyway because the neighbors have been using this land as their own personal dog park and hunting ground. It’s getting a fence next week. It is posted no trespassing but of course everyone thinks that doesn’t apply to them.

[clanter]

@soloudinhere

At the moment, we are in the process of “buying” the land on a held mortgage from the realty trust. We will make
the property is indeed land locked. There is a cut that is wide enough for a driveway but not a road. At least one house is built close enough to the property line that we could not seize land from them without violating setback.

you need to obtain a legal easement…it appears you should have been granted an “Easement by Necessity”

An easement by necessity arises by operation of law only if two strict conditions are met: (1) there is a strict necessity for the right-of-way such as owning a landlocked parcel with no access to a public right of way; and (2) at one time, the landlocked parcel and the parcel over which the right-of-way is sought, were owned by the same person(s). The exception to this rule is where the landlocked parcel was patent deeded by the federal government to the current owner or to his or her predecessor in the chain of title.

http://www.bullivant.com/Easement-by…if-the-federal

There will be bad bad blood anyway because the neighbors

I hope you really want that specific piece of land as the conditions that keep being added as this is setting up to be one long frustrating period of time in your life

we are in the process of “buying” the land on a held mortgage

would that be a contract for deed purchase?

[soloudinhere]

@clanter

would that be a contract for deed purchase?

Basically.

There is a legal frontage to the main road. The problem is, the width of that frontage is sufficient for a driveway, but does not meet the current standards for a two-way street. Thus, there can only be one homesite on the property. It is ACCESSIBLE, we drove in today, but you can’t put 15 houses back there. Just one.

[Guilherme]

@soloudinhere

At the moment, we are in the process of “buying” the land on a held mortgage from the realty trust. We will make “interest” payments, thus making it a legal purchase for consideration, and the trust will “forgive” $15,000 per year of principal to each of us for three years until the loan is satisfied.

If I remember by IRC correctly this will create a taxable income event for you to the amount of debt forgiven. And it can create an issue for the trustee as beneficiaries of the trust could complain that they are wasting trust assets. Should that happen you might have to return the property to the trust. Check with your lawyer and tax adviser so you don’t get an unpleasant surprise.

the property is indeed land locked. There is a cut that is wide enough for a driveway but not a road. At least one house is built close enough to the property line that we could not seize land from them without violating setback.

Everyplace I’ve ever lived all you need is a driveway. But it must be a deeded easement.

There will be bad bad blood anyway because the neighbors have been using this land as their own personal dog park and hunting ground. It’s getting a fence next week. It is posted no trespassing but of course everyone thinks that doesn’t apply to them.

I’ve seen that, too! When I bought my present farm I had one guy tell me he was going to hunt my woods whether I permitted it or not and dared me to stop him. I just smiled and said, “OK.” He stomped off in a huff but never hunted my woods; or at least I never saw him!!!

Final word (I hope): get a lawyer to ensure everything is “according to Hoyle.” Fixing a mistake in a real estate transaction is always more expensive that avoiding the mistake in first instance.

Good luck to you as you go forward!

G.

[soloudinhere]

@Guilherme

I’ve seen that, too! When I bought my present farm I had one guy tell me he was going to hunt my woods whether I permitted it or not and dared me to stop him. I just smiled and said, “OK.” He stomped off in a huff but never hunted my woods; or at least I never saw him!!!

Final word (I hope): get a lawyer to ensure everything is “according to Hoyle.” Fixing a mistake in a real estate transaction is always more expensive that avoiding the mistake in first instance.

Good luck to you as you go forward!

G.

$15000 per giftee is the gift limit. Even so, gifted funds are subject to tax by the gift giver, not by the receiver. It is entirely permissible to gift any number of people $15,000 per year, exempt, up to the (previous) lifetime maximum of $5.49m. Would take us a long time to get there at $30k per year.

[OneTwoMany]

@soloudinhere

Actually this is the one thing we won’t do as any sort of residential features such as a bathroom may classify the whole building as a residence and we would be taxed on a 21,000sq ft house.

I’m sure every taxing authority is different, but in our township, if you are permitted for a barn and you receive a CO for a barn you’ll be assessed for a barn. Not sure a taxing authority could justify taxing a barn as a residence if it wasn’t grandfathered or permitted for that use and if they did, there would be grounds for a challenge.

On the bathroom topic, if the barn is only for private use, owners build barns without bathrooms all the time. However, if outside people will be at the barn such as staff, boarders, various professionals, etc., be prepared to have folks ask to use the facilities in your home, if you have one on the property.

[js]

Be sure you have security cameras to monitor what will be going on in your barn and pastures while your not there. If neighbors are going to be upset with the lose of use of the land, don’t expect them to necessarily stop using it and they may try messing with your horses.

[Guilherme]

@soloudinhere

$15000 per giftee is the gift limit. Even so, gifted funds are subject to tax by the gift giver, not by the receiver. It is entirely permissible to gift any number of people $15,000 per year, exempt, up to the (previous) lifetime maximum of $5.49m. Would take us a long time to get there at $30k per year.

This does presume the donor of the gift styles it that way. But that can annoy other beneficiaries of the trust if they don’t get gifts, too. And the IRS can challenge the category of income and re-categorize it if they find it in error. The odds of this are small at the $15,000 level. But “small” is not zero.

If your trustee is getting sound advice from the trust’s lawyer they you are probably OK. If not…?

G.