By Ken Berry, J.D.
Normally, to claim a charitable deduction for a donation of property, you must donate all your ownership rights in the property. However, if a landowner donates a “chartable easement,” they may claim write-offs of six or seven figures, or even higher, for property they technically keep. As shown in a new case, Rock Cliff Reserve, LLC, TC Memo 2025-73, 7/14/25, these deductions must be supported by qualified appraisals.
Background: Generally, a real estate owner can claim a deduction when an interest is donated to a qualified charitable organization for certain specific conservation purposes. Unlike most other charitable gift of property, the deduction is available if you retain ownership of the property. In some cases, you can even prohibit the public from trampling across your land.
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The contribution must be made to a government unit, publicly supported charity or organization controlled by and operated for the exclusive benefit of a government unit or publicly supported charity. This applies to the following types of conservation easements.
- Preservation of land for outdoor recreation or education of the general public. This category includes property preserved for fishing and boating or land designated for nature or hiking trails. Public use of the property must be “substantial and regular.”
- Protection of a natural habitat of fish, wildlife or plants or a similar ecosystem. Access by the public may be limited for environmental reasons.
- Preservation of a historically significant historic structure. To qualify for this deduction, the public must have some access to the property.
- Preservation of open space either for the scenic enjoyment of the general public or pursuant to a government conservation policy. For this purpose, visual access is sufficient and physical access to the property isn’t required.
In addition, donations of conservation easements are currently deductible up to 50% of adjusted gross income (100% for ranchers or farmers) instead of the usual 30%-of-AGI limit. And any excess may be carried of 15 years, not just five years.
However, the donation must be made “in perpetuity.” In other words, the property can’t ever be used for any other purposes.
New case: Several partnerships operating as limited liability companies (LLCs) all had their principal places of business in Georgia. Collectively, they donated multiple easements in vacant Georgia land for conservation purposes. The valuations of the easements totaled more than $62 million.
Some of the witnesses supporting the taxpayer’s position were promoters who organized the transactions and helped market the deals to investors. Other witnesses had invested in easement deals or acted as professional advisors to the promoters.
The IRS challenged the appraisals submitted by the taxpayer due to significant differences in in the valuations over recent purchase prices. It said that the appraisals were invalid and the Tax Court agreed.
Reasons: (1) The valuations used for comparables differed for a variety of reasons. (2) An appraiser will be disqualified if there’s an agreement whereby the appraiser knowingly claims a valuation in excess of the fair market value (FMV) of the property.
As a result, the Tax Court denied the deduction in full. To add insult to injury, it tacked on gross valuation misstatement and accuracy-related penalties.
Bottom line: With a huge amount of tax dollars at stake, it is important to strictly adhere to the rules for qualified appraisals. Don’t be overly greedy.
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Tags: conservation easement, Income Taxes, Taxes
