In 1999, the five Eastern towns of Suffolk County adopted the Community Preservation Fund (CPF) which is used to purchase development rights on farm land. So what exactly does the sale of development rights mean? Essentially, the town will purchase the landowners rights to develop the land, but the landowner still retains the title and is still the landowner.
The CPF program is intended to preserve our farmland and the East End’s open space. The town will approach owners of larger tracts of land (owners may also approach the town) to inquire if they are interested in participating. The land is appraised and the town makes an offer. The program requires that, after the sale of the development rights, the landowner follows restrictions as to what the landowner may or may not do with the property. These terms and restrictions are negotiated during the transaction and typically varies with each transaction. If you are interested in purchasing farm land, it is imperative that you know if the development rights have been sold and the restrictions that have been placed by the town.
Where does the CPF get its money to purchase development rights? A 2% tax is levied on each real estate transaction in the Eastern five towns and is collected at closing. Therefore it’s very important to be aware of this tax when factoring your purchasing power.
How exactly is the CPF tax calculated? An easy way to calculate it is using the following guidelines:
- The first $150,000 of your purchase price, in Southold and Riverhead towns, is exempt from the tax.
- The first $75,000 in Southold and Riverhead for unimproved land, is exempt.
- The remaining amount is taxed at 2%.
For example, if you are purchasing a home for $500,000 — $350,000 of that amount is subject to the CPF tax (350,000 x .02) therefore $7000 will be added to your closing costs.
Although no one enjoys taxes except the IRS, it can be argued that the CPF tax has certainly been effective in preserving the rural feel of the North Fork.