An article appeared in Bloomberg News within the last year that highlighted the complexities of the conservation easement tax break. Both the conservation easement and the related tax incentives are sophisticated real estate and tax matters subject to regular debate by landowners, land trusts, and the Internal Revenue Service.
The Bloomberg article describes the conservation program in part as a “complex and obscure tax break that benefits some of the nation’s wealthiest property owners.” Problems can arise when landowners take advantage of the program by securing unreasonably high appraisal values for their properties, upon which the tax break is calculated. Other problems can arise when the various, complex IRS rules are not followed closely. Due to the apparent problems, uncertainty, and possibility of IRS oversight, some are shying away from utilizing the conservation easement.
The other article, a response to the Bloomberg article, appeared on the Land Trust Alliance website. The response notes certain apparent factual errors, including the type of landowner making the donation (8 in 10 are not millionaires) and that the cost of the deduction appeared to be overstated by 400%. It should be noted that the Land Trust Alliance, an advocate for land trusts in the United States, has an inherent bias as much as Bloomberg may have a bias toward economic benefit, namely the Land Trust Alliance wants to see the conservation easement program grow for the benefit of its land trust members.
Although informed minds may differ, what appears consistent is that the conservation easement program – for the land trust, the landowner, and the IRS – continues to be a complex program, with enough uncertainties to cause tension among the various parties. The easements are complicated because, among other reasons, they are perpetual in nature. In order to receive the desired tax treatment, IRS requires landowners to follow a strict guidelines and rules.
The result of these various competing aspects of the conservation easement may have an unintended consequence: property owners look for certainty in their investments and accounting, and if/when conservation easements appear too complex or uncertain as a tax strategy, the property owners may decide it is best just not to avail themselves of the benefit of that tax benefit.
It will be interesting to see how conservation easements continue to evolve between landowners and the IRS.
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