In theory conservation easements are simple- a landowner grants a perpetual easement on a portion of his land for a charitable purpose and gets an income tax deduction for the reduction in value to the land encumbered by the easement. Many wealthy landowners have successfully done conservation easements. However, they have been highly abused over the years with inflated appraisals and syndication of the concept.
Recently, the Tax Court in Pine Mountain Preserve channeled Meatloaf’s famous song, and held that two out of the three conservation easements claimed were bad. The issue here wasn’t inflated appraisals but rather improper reservations of future residential development of sixteen homes on the easement property without specifying where this potential residential development could be done. This meant that the easement was not granted “in perpetuity” as required by Section 170(h)(2)(C) the Internal Revenue Code.
Bottom line is this- if you are going to consider a conservation easement, apply the KISS principle. The statute is straightforward, keep the deal simple and get a highly qualified appraiser that follows best practices.
