Perpetual Conservation Easements: Claiming a Tax Deduction

A perpetual conservation easement is a legal agreement a property owner makes to restrict development on their land. This preserves the land for public benefit and offers the owner a potential federal income tax deduction. By donating development rights, the owner protects the property’s conservation features indefinitely while retaining ownership. In exchange for this permanent commitment to protect things like wildlife habitats or scenic views, the tax code provides an incentive for the charitable contribution.

Core Requirements for a Tax-Deductible Easement

For a conservation easement donation to be tax-deductible, it must meet several requirements. The donation must be a “qualified real property interest,” meaning it is a permanent restriction on the property’s use that is legally binding on all current and future owners. This ensures the conservation goals are upheld indefinitely.

The donation must be made to a “qualified organization,” such as a government agency or a land trust. The organization must have a commitment to conservation and the resources to monitor the property and enforce the easement’s terms over the long term.

The easement must also be “exclusively for conservation purposes,” which means it serves at least one of four objectives:

• The preservation of land for public outdoor recreation or education.
• The protection of a relatively natural habitat for wildlife or plants.
• The preservation of open space for scenic enjoyment or pursuant to a government conservation policy.
• The preservation of a historically important land area or a certified historic structure.

Each of these purposes has specific criteria that must be met. For instance, an easement for public recreation requires substantial and regular access for the general public. If protecting a natural habitat, the habitat must be significant. An easement for scenic enjoyment must provide a benefit to the general public, not just the property owner.

Determining the Charitable Contribution Value

The value of a donated conservation easement is determined using the “before and after” approach. This method calculates the difference between the property’s fair market value before the easement is granted and its fair market value after the restrictions are in place. This difference represents the value of the charitable contribution.

To substantiate this value, the donor must obtain a “qualified appraisal” from a “qualified appraiser.” A qualified appraiser has verifiable education and experience in valuing the specific type of property. The appraisal must be conducted in accordance with professional standards, and it cannot be completed more than 60 days before the donation date or later than the due date for the tax return where the deduction is first claimed.

The appraisal report must describe the property, the valuation method used, and the basis for the valuation. It must clearly state the “before” and “after” values and explain how the appraiser arrived at those figures. The property owner is responsible for obtaining and paying for this appraisal.

The deduction’s value must be reduced if the easement enhances the value of other property owned by the donor or a related party. The reduction is equal to the amount of the enhancement. Additionally, the value must be reduced by the amount of any state tax credit the donor receives for the same donation. For example, if an easement is valued at $200,000 and the donor receives a $100,000 state tax credit, the federal deduction is limited to $100,000.

Required Documentation and Substantiation

A property owner must assemble specific documents before claiming a tax deduction. The primary legal document is the easement deed, which is recorded in local public records. This instrument formally conveys the development restrictions to the qualified organization.

Another document is the baseline documentation report. This report details the property’s condition at the time of the donation, including maps, photos, and descriptions of its features. The qualified organization uses this report for future monitoring to ensure the easement’s terms are upheld.

The taxpayer must also complete IRS Form 8283, Noncash Charitable Contributions. For donations over $5,000, Section B of this form must be filled out. This section requires a description of the property, its appraised fair market value, the owner’s cost basis, and signatures from the qualified appraiser and the donee organization. The donee’s signature acknowledges receipt of the gift but is not an endorsement of the claimed value.

Claiming the Deduction on Your Tax Return

To claim the deduction, the fully completed Form 8283 must be filed with the taxpayer’s return for the year in which the donation was made. This form officially reports the noncash charitable contribution to the IRS.

If the claimed deduction is more than $500,000, the taxpayer must also attach a complete copy of the qualified appraisal to their tax return. Failure to attach Form 8283 or the required appraisal can result in the deduction being disallowed.

The deduction amount in a single year is limited by the taxpayer’s adjusted gross income (AGI). For most individuals, the deduction is limited to 50% of their AGI. Any unused portion of the donation can be carried over for up to 15 years.

A more generous rule applies to “qualified farmers and ranchers,” defined as those earning over 50% of their gross income from farming. These individuals can deduct the easement’s value up to 100% of their AGI, with the same 15-year carryover period.

Post-Donation Considerations

After the donation, the landowner has an ongoing responsibility to abide by all restrictions in the easement deed. This includes managing the property in a way that does not impair its conservation values. The easement is a permanent part of the property’s title.

The qualified organization has a perpetual stewardship duty to monitor the property, ensuring the landowner complies with the terms. If a violation occurs, the organization is responsible for enforcement, which may include legal action to correct it.

If the property is sold or transferred, the conservation easement “runs with the land.” This means all subsequent owners are legally bound by the same restrictions in the original deed. The easement is a permanent encumbrance on the property, not a personal agreement with the donor.

In rare situations, a court may terminate an easement if the conservation purpose becomes impossible to fulfill. If this happens and the property is sold, the qualified organization must receive a share of the proceeds. This share is proportionate to the value the easement represented at the time of the initial donation.