The Conservation Easement Charitable Deduction

Prof. Beckett G. Cantley*

Holders of historically and environmentally significant real property often desire to maintain the property in its present state. However, undeveloped or historically preserved use is unlikely to be the most profitable land use, particularly where such land lies in a major urban area or contains valuable mining rights. Landowners with a genuine desire to preserve their land may lack the means to maintain valuable land at less than optimal use. Due to these concerns, Congress enacted Internal Revenue Code (“I.R.C.”) § 170(h)(2)(C) to provide tax deductions for taxpayers who donate an easement that is considered a “qualified conservation contribution”. The enactment of a federal income tax deduction for the donation of an easement considered to be “qualified conservation contribution” was essentially a Congressional subsidy to preserve historically and environmentally unique land in its current state, rather than developing the land to a more profitable use.

In general, a “qualified conservation contribution”, has the following qualifications and benefits:

*Donation Requirements.  The donation is of an easement restricting use of a perpetual term (i.e., forever), made with charitable intent, to a qualified organization (i.e., a charity or governmental body), exclusively for conservation purposes (i.e., there is no substantial personal or commercial benefit to the donation), and properly substantiated through appropriate appraisals and forms.

*Valuation. The amount of a “qualified conservation contribution” is generally valued as the difference between the fair market value (i.e., what a willing buyer would pay) of the donor’s property pre- and post-donation, reduced by the amount of any short-term built-in capital gain (i.e., taxable profit owner would have if he sold it) existing in the contributed property at the time of donation.

*Deduction Limitation. The amount of a “qualified conservation contribution” is tax-deductible to the donor. The donor’s ability to currently deduct a charitable contribution in a given tax year is generally limited to fifty percent (50%) of the donor’s adjusted gross income in 2013. However, the rate drops to thirty percent (30%) after December 31, 2013 without any additional legislative action. If not all of the current year’s deduction is used against the donor’s adjusted gross income, the deduction can be carried forward (i.e., used against income) for 15 years.

This is part one in a series on real property investments that take a conservation easement deduction passing to their investors.  The second article will discuss the use of investment entities (such as limited liability companies) that hold real property and make conservation easement donations that result in deductions passing through to the members.


* Beckett G. Cantley (University of California, Berkley, B.A. 1989, Southwestern University School of Law, J.D. cum laude, 1995; and University of Florida, College of Law, LL.M. in Taxation, 1997) is an Associate Professor of Law at Atlanta’s John Marshall Law School.

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