Tax Deductions for Conservation Easements

CONSERVATION EASEMENTS IN A NUTSHELL

A conservation easement is a charitable contribution of land in which the owner gives up only certain rights such as the development rights for their acreage. The intended purpose of a conservation easement is to preserve and protect the land. The owner of the land foregoes the fair market value of the land and in return, may receive a deduction based on the appraised value of the land.

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NEW DEDUCTION LIMITATIONS

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Congress passed the SECURE 2.0 Act in 2022 which, in part, provides new limitations with respect to conservation easement contributions made after December 29, 2022. The IRS subsequently issued proposed regulations in November 2023 concerning the new limitations. Under the new law, a qualified conservation contribution will be disallowed if the amount is more than 2.5 times the sum of each partner’s or S corporation shareholder’s relevant basis in the partnership or S corporation.

There are a few exceptions to the new limitation where certain holding period requirements are met and for family-owned pass-through entities and contributions to preserve certified historic structures.

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CAUTION

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Taxpayers should be careful of advice received regarding conservation easements. IRS Commissioner Danny Werfel said in a news release recently, “The IRS is focusing its new compliance efforts on those who evade taxes through complex partnership structures and overvalued conservation easement contributions. The regulations issued today will stem the tide of certain syndicated conservation easements that are nothing more than retail tax shelters, while protecting the integrity of legitimate conservation easements and helping law-abiding taxpayers more easily meet their obligations.” With the new limitations effective for contributions made after December 29, 2023, taxpayers must be even more diligent when being approached by parties promising large deductions for relatively small investments.