What Is a Conservation Easement?
A conservation easement is a permanent restriction on the development rights of qualifying land, donated to a qualified organization in exchange for a charitable tax deduction under IRC Section 170(h). The deduction is based on the difference between the property's fair market value with full development rights and its value after the easement restrictions are in place, as determined by a qualified appraisal meeting the requirements of Treasury Regulation 1.170A-14.
As described in "Billionaire Wealth Strategies" (Jim Dew, 2024), Chapter 9, conservation easements fall under the "R" (Reduce) component of the DEAPR framework.
How Does a Conservation Easement Work?
The landowner donates a conservation easement to a qualified land trust or government entity that meets IRC Section 170(h)(3) requirements. A qualified appraiser, meeting IRS standards under IRC Section 170(f)(11), determines the "before and after" values of the property. The difference becomes a qualified conservation contribution.
Under IRC Section 170(b)(1)(E), the deduction for qualified conservation contributions is limited to 50% of adjusted gross income (AGI) per year, with a 15-year carryforward for unused amounts. Qualified farmers and ranchers who meet the requirements of IRC Section 170(b)(1)(E)(iv) may deduct up to 100% of AGI.
The donated easement must serve at least one of four conservation purposes defined in IRC Section 170(h)(4): preservation of land for outdoor recreation or education, protection of natural habitats, preservation of open space for scenic enjoyment or pursuant to government policy, or preservation of historically important land or structures.
The landowner retains ownership and use of the property subject to the easement restrictions. The land can typically continue to be used for agriculture, recreation, and existing structures. Subdivision and commercial development are permanently prohibited, and the restriction runs with the land in perpetuity.
When Do Entrepreneurs Use Conservation Easements?
Landowners with appreciated rural or scenic property benefit most from conservation easements. Ranches, farms, and undeveloped parcels in growth areas where the difference between developed and conserved value is significant produce the largest deductions.
Estate tax reduction results from removing development value from the taxable estate. Under IRC Section 2031(c), qualifying easement donations may provide an additional estate tax exclusion of up to 40% of the land value (capped at $500,000), reducing the estate tax burden for landowners whose estates exceed the $13.99 million lifetime exemption (2025) under IRC Section 2010(c).
High-income years are ideal for the deduction because the 50% AGI limitation means higher income allows more of the deduction to be used in the contribution year. The 15-year carryforward under IRC Section 170(b)(1)(E) captures unused deductions in subsequent years.
How Does Dew Wealth Approach Conservation Easements?
Conservation easements have been subject to increased IRS scrutiny, particularly for syndicated easement transactions where investors purchase land specifically to generate inflated deductions. The IRS has listed syndicated conservation easement transactions as "listed transactions" under IRS Notice 2017-10, requiring disclosure on Form 8886 and imposing penalties for nondisclosure.
Dew Wealth advises clients to ensure any conservation easement has a legitimate conservation purpose under IRC Section 170(h)(4), uses a qualified appraiser who meets IRS requirements, and is donated to a reputable land trust accredited by the Land Trust Alliance. The Fractional Family Office® coordinates with both the tax advisor and real estate attorney to verify compliance with Treasury Regulation 1.170A-14.
The deduction can be substantial, but the restriction is permanent. Landowners cannot reverse the easement or reclaim development rights in the future. The IRS may challenge the appraised value, potentially reducing the deduction years after the contribution. Adequate documentation, including photographs, environmental assessments, and baseline reports, is essential to defend the deduction in the event of an IRS audit.
Frequently Asked Questions
Do I lose the ability to use my land?
How much is the deduction worth?
What are the risks of an IRS challenge?
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