Conservation Easements: Risk and Reward

Internal Revenue Code §170(h) permits a charitable income tax deduction for the contribution of a "qualified real property interest" — most commonly a perpetual conservation easement — to a qualified organization for conservation purposes. Properly structured, the deduction equals the fair market value of the easement, calculated as the diminution in value of the underlying land caused by the easement. The provision has been the most aggressively litigated charitable provision of the past two decades. SECURE 2.0 §605 imposed strict deduction limits on syndicated partnerships, ending the abusive structures that drew most of the enforcement attention. Direct conservation easements by landowners remain valuable and uncontroversial.

The statutory framework

Section 170(h) requires three elements:

1. Qualified real property interest: Entire interest other than a qualified mineral interest, a remainder interest, or a perpetual conservation restriction.
2. Qualified organization: Government unit or §501(c)(3) charity meeting "publicly supported" tests and having the resources and commitment to enforce the easement in perpetuity.
3. Conservation purpose: Preservation of land for outdoor recreation by or education of the public; protection of natural habitat; preservation of open space (including farmland or forestland) yielding significant public benefit; preservation of historic land area or structure.

Deduction mechanics

• Fair market value determined by qualified appraisal: typically (a) before-easement market value minus (b) after-easement market value.
• AGI ceiling: 50% of AGI (raised from 30% in 2015) for qualified farmers and ranchers; 50% for individuals; 25% for C corporations.
• Carryforward: 15 years (10 years for non-conservation contributions).
• Form 8283: Required if deduction exceeds $5,000. Section B requires donee acknowledgment, appraiser signature, and detailed property description.
• Appraisal substantiation: Qualified appraisal by qualified appraiser (Treas. Reg. §1.170A-17). Stringent: an inadequate appraisal disqualifies the deduction entirely. Mohamed v. Commissioner, T.C. Memo. 2012-152, denied a multi-million-dollar deduction for a single Form 8283 defect.

The syndicated easement crackdown

Beginning around 2010, promoters marketed "syndicated conservation easement" investments to high-income taxpayers, packaging easements with deductions of 4×–9× the investor's cash contribution. The IRS designated syndicated easements with deductions exceeding 2.5× as "listed transactions" in 2017 (Notice 2017-10). The Eleventh Circuit struck down the listing in Green Rock LLC v. IRS, 113 F.4th 1265 (11th Cir. 2024), on Administrative Procedure Act grounds.

SECURE 2.0 §605 enacted a statutory disallowance: contributions of an interest in real property by a partnership are disallowed to the extent the claimed deduction exceeds 2.5× the partner's relevant basis in the partnership. The provision codifies the IRS position and applies to contributions made after December 29, 2022. The Tax Court has consistently disallowed pre-2022 syndicated easements on §170(f)(11) substantiation grounds and "perpetuity" defects (Oakhill Woods, Oakbrook Land Holdings, etc.).

What still works: direct landowner easements

A landowner who places a conservation easement on family land they have held for years — restricting future subdivision or development — receives a deduction reflecting the genuine economic value foregone. These easements are not syndicated, deduct at FMV (typically 1:1 with the value sacrificed, not multiples), and remain enforceable. The IRS challenges these on appraisal and perpetuity issues but they survive when carefully documented.

Worked example: 200-acre family farm

A landowner holds 200 acres in a rapidly developing exurban area. Current use: working farm.

• Before-easement FMV: $3,500,000 (developable at 1 home per 5 acres, $87,500/acre).
• After-easement FMV: $700,000 (restricted to agricultural use, no subdivision; $3,500/acre).
• Diminution / charitable deduction: $2,800,000.
• Donor's basis in the land: $200,000 (long-held).
• AGI: $400,000.
• Year-one deduction: $200,000 (50% of AGI). Carryforward $2,600,000 over up to 15 years.
• Federal tax savings (37% bracket): approximately $1,036,000 over the carryforward period.
• State savings (depends on state conformity): additional 5–10%.

The donor retains the land, continues farming, and receives the deduction. The trade is real: future development rights are surrendered in perpetuity.

Common mistakes

• Inadequate appraisal. The single most common cause of disallowance. Use a qualified appraiser with conservation-easement experience; review the report before signing.
• Defective perpetuity clause. The easement must restrict the property "in perpetuity" with extinguishment rights protecting the charity's continuing interest. Reverter rights, subordination of mortgages, and amendment provisions are common defect points. Hewitt v. Commissioner, 21 F.4th 1336 (11th Cir. 2021), addresses the proceeds clause requirement.
• Donee organization without enforcement capacity. The donee must have the resources to monitor and enforce the easement. Use established land trusts with Land Trust Alliance accreditation.
• Mortgaged property without lender subordination. The lender must subordinate its rights or the easement is defeasible — and §170(h) is denied.
• Syndicated-deal participation post-2022. The §605 disallowance is statutory; recharacterization or restructuring will not cure it.
• Mining or commercial rights retained. Reservation of significant mineral rights or commercial timber rights can violate the conservation-purpose requirement.

Sources

• Internal Revenue Code §170(h): law.cornell.edu/uscode/text/26/170
• Treasury Regulation §1.170A-14: ecfr.gov §1.170A-14
• SECURE 2.0 Act §605, codified at §170(h)(7): congress.gov/bill/117th-congress/house-bill/2617
• Hewitt v. Commissioner, 21 F.4th 1336 (11th Cir. 2021): ca11.uscourts.gov
• Land Trust Alliance, Standards and Practices: findalandtrust.org standards

Conservation easements remain valuable for genuine landowners. Explore the free educational tool.