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Conservative Easement

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Conservative Easement

 

A conservation easement is a gift of a partial interest in land or other real estate you make to a publicly-supported charity or government. It lets you give away the right to develop the property in the future, take an immediate deduction for the value of the rights you donate, yet continue to enjoy the property just as you do now.

Example:You own a 100-acre farm that you bought 20 years ago when it was out in the middle of nowhere. Now the highway has come, and developers are eyeing your property. But you prefer to preserve the green space rather than make a quick buck selling lots for new McMansions.
 
You put an easement on the property prohibiting any future subdivision or development. Your appraiser tells you that the property is worth $3 million to the developers — but only $1 million after the easement is placed. Your deduction is the $2 million difference.

Farms and undeveloped land are the most common subjects of conservation easements. However, golf course owners have given away the right to redevelop their properties, and owners of historic homes have donated “façade easements” restricting the right to alter their homes’ historic character.

If you don’t own suitable property to create a conservation easement, you can still take advantage of the strategy by investing in a conservation easement partnership. In these cases, a syndicator buys a suitable property, generally from a conservation-minded seller who doesn’t have enough income to take full advantage of the deduction they could create. These arrangements essentially let the original property owner “sell” the deduction they can’t use to outside investors.

Traditionally, investments in conservation easement partnerships will yield tax savings that are actually greater than the capital you invest. However, in early 2017 the IRS declared that conservation easement partnerships offering tax deductions that equal or exceed 2.5 times the investment will be treated as “listed transactions” subject to special disclosure.

 

 

 

 

 

 

 

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