If certain requirements are met, real estate owners may benefit from six-or-seven figure charitable deductions for donating conservation easements that keep forestry or wilderness in pristine condition. But these deductions may also be available for easements in urban areas.
Key point: As shown a new case, Del Monte LLC, TC Memo 2026-107, 10/19/26, the donation of a conservation easement must be made in perpetuity.
Background: A taxpayer can deduct the full fair market value (FMV) of donated property they have owned longer than one year if the charitable organization uses the property to further its tax-exempt purpose. Such gifts are subject to an annual limit of 30% of adjusted gross income (AGI), but any excess may be carried forward for up to five years.
These rules apply to donations of an interest in property for certain specific conservation purposes. Unlike most other charitable gifts, you can still retain ownership of the property, although you must grant certain rights for using or viewing the property. Contributions must be made to a government unit or public charity or organization.
Specifically, a taxpayer may be able to write off the value of the conservation easement for any one of these reasons.
- Preservation of land for outdoor recreation or education of the general public.
- Protection of a natural habitat of fish, wildlife or plants or a similar ecosystem.
- Preservation of a historically significant historic structure.
- Preservation of open space either for the scenic enjoyment of the general public or pursuant to a government conservation policy.
However, IRS often zeros in on deductions it suspects have been unjustly inflated. In particular, it is wary of deals arranged through conservation syndicates, including based on preservation of historic buildings. These arrangements have been cited on the list of “Dirty Dozen” tax scams published annually by the IRS.
Facts of the new case: A limited liability company L(CC) in Ohio, in conjunction with another LLC, acquired buildings of historic significance in downtown Columbus and sold them to a syndicate. The syndicate structured multi-tiered partnerships to distribute tax deductions to investors based on conservation easements for historic structures.
The LLC executed and recorded historic preservation easement agreements conveying building facade restrictions and relinquishing unbuilt air development0 rights. To substantiate the deductions, the promoter used architects and appraisers to prepare “lost development rights” feasibility studies proposing massive hypothetical vertical expansions on the top of the historic structures. Then the syndicate claimed about $39 million in charitable deductions for the easement. But the IRS objected to the deal.
Now the Tax Court has agreed with the IRS and denied the deductions. Notably it determined that the valuations of the easements were excessive and that the syndicate. failed to comply with the perpetuity rules.
Caution: With the huge amount of tax dollars at stake, clients considering conservation easements must strictly adhere to the rules and consider all the implications. Once an easement is arranged, it is irrevocable—there is no going back.
Sign in to get access to this free resource, and all of our whitepapers and reports.
Download this content today!
Register Now Already registered? Click here to Log In
Tags: deductions, easements, historic structures, IRS, tax court, Taxes
