Conservation Easements

There is a section in the IRS tax code, designed to preserve certain U.S. lands, permitting wealthy investors to significantly reduce their income tax liability. Landowners who are willing to grant a permanent restriction on the use of their property to a qualified organization exclusively for conservation purposes will get a big tax deduction even though they still own and possess the land. Easements could be used to preserve a wildlife habitat, a scenic view, water quality or agricultural property.

According to Yahoo finance, President Trump, has reportedly generated more than $100 million in write-offs through easement deals, including a $39 million deduction on his Bedminster, New Jersey golf course.

Recently, investors looking to reduce their tax liability, have been investing in syndicated conservation easements. These partnerships purchase properties, grant conservation easements, and pass the tax deductions to each partner. The structure works most effectively when the partnership is able to get a high appraised valuation of the easement. It is not uncommon for the appraised value of the easement to be eight to nine times higher than the purchase price of the land. In that case, a $1 million investment could result in a $9 million tax deduction. The deduction can be used to offset up to 50 percent of one’s income.

The IRS does consider this type of strategy as a listed transaction, which requires participants to fill out a special form with their returns disclosing their participation in the transaction. A few lawmakers, who viewed the large tax deductions created by this strategy as excessive, proposed legislation at the end of 2017 to limit the tax deductions to investors. However, the bill did not gain enough support in the face of opposition from large land conservation lobbying groups. Thus, the use of conservation easements remains a viable strategy. You should consult a tax adviser with the appropriate expertise prior to utilizing unique tax strategies.