Conservation Donation Rules
This page outlines the various rules that landowners, their advisors, and land trusts should know about general rules for all non-cash donations, rules specific to conservation easement donations, rules for the enhanced incentive, and rules for estate tax deductions. Please note that the enhanced incentive has expired. Because the incentive is likely to be continued, the information is still available here. However, the enhanced incentive is only for some categories of conservation easement donations. Consult an expert for advice specific to your situation. For a more basic introduction, see our Landowners Page and Steps to Donate a Conservation Easement. For information on state tax credits for conservation donations, see the Alliance page on state tax credits.
THIS PAGE IS NOT A SUBSTITUTE FOR INDEPENDENT LEGAL AND TAX ADVICE.
A donor of land or a conservation easement may qualify for federal income tax benefits as a result of the donation if the donor and advisors understand and follow the tax rules. It benefits everyone—from donors to taxpayers to the conservation community as a whole—to satisfy the tax code and treasury regulation requirements when claiming a deduction. Even when claiming a state tax credit or state income tax deduction, donors often need to follow the federal rules.
The federal income and other tax benefits generated by the donation of a conservation easement or land have helped dramatically increase private land protection in the United States. A significant percentage of all of the transactions that protect private lands for the benefit of the public can qualify for income and estate tax benefits. These benefits enhance conservation efforts by setting standards for qualified conservation contributions and mitigating for the donor the lower property value resulting from the restrictions of a conservation easement.
To claim tax benefits for the donation of a conservation easement or land taxpayers must substantiate their claim with a qualified appraisal. Basically, donors must prove that they are losing valuable rights when placing restrictions on their property. Historically, the appraisal has been the area most closely scrutinized by the IRS in its review of charitable donations of conservation easements.
Even if it isn’t fraudulent, a non-credible appraisal, damages the integrity of any conservation transaction. It also damages the reputation of the land trust involved in the transaction, riskingpublic trust and reducing support for conservation in general.
You must obtain your own independent legal, tax and other advisors. Those advisors should be experts in the state and area of law in which you are considering a donation. A reputable land trust in your area can help identify local experts, or visit the Alliance Expert Link directory. We also recommend referencing one of the excellent tax guides from the Alliance publications store when considering any land or easement transaction. As discussed in Standard 10 of Land Trust Standards & Practices, land trusts should help their donors understand the range of issues by pointing to available guidance on relevant federal and state tax law requirements, identifying possible concerns and explaining constraints on land trusts regarding charitable gifts of land or easements. Ultimately the donor is responsible for ensuring that the transaction meets all applicable requirements for claiming tax benefits.
- Rules for All Non-Cash Charitable Donations
- Rules Specific to Conservation Easement Donations
- Using the Enhanced Easement Incentive
- Using the Estate Tax Benefits for Conservation Easements
- State and Local Tax Benefits of Conservation Donations
- Additional Requirements for Easements on Historic Structures
- For Further Reading
Generally speaking, there are three categories of charitable contributions: donations of services, donations of cash, and donations of property (also known as capital property). A taxpayer who donates land, an easement or other personal or real property to a public charity or government agency may generally deduct its full fair market value (less any bargain sale payments), but deductions for donations of "capital gain property" are usually limited to 30 percent of the donor’s adjusted gross income in any given year (10 percent for C corporations), with the remaining value carried forward for up to five additional years except for those who qualify for the enhanced incentive.
Congress renewed the provision of law they passed in 2006 allowing S-corp shareholders to deduct the fair market value of their donations, (rather than limiting their deductions to the shareholders basis in their stock), but it expired December 31, 2013 along with the enhanced incentive. See the discussion below.
The sole exception to these general limits is the enhanced easement incentive, discussed below, that expired at the end of 2013. The Alliance and land trust partners are working with Congress to renew this provision for 2014 and retroactively apply it to donations made in 2014. Renewal and retroactive application have happened in the past but donors should not rely on the prospect of renewal. (IRS Pub 526 has a worksheet to help you calculate these limitations should they apply to your donation.)
As always, these rules are fluid so your tax and legal advisors must advise you independently regarding the law that is current at the time of your donation and how the law affects your particular facts. This page is general information only and you may not rely on it for tax, legal or other advice.
Form 8283 and Appraisal Requirements
The IRS requires donors seeking tax deductions to file IRS Form 8283 for all non-cash contributions valued at greater than $5000.00. That means that making sure the Form 8283 is complete and accurate is the donor’s responsibility; not the land trust’s. The land trust should assist you with information and general guidance. The land trust is also constrained by IRS rules regarding the accuracy and completeness of any tax form they sign.
The IRS most recently updated the form and its instructions as of December 2013. According to the 2004 law on appraisal requirements, the IRS requires donors to obtain a “qualified appraisal” for most gifts of property for which taxpayer donor claims a deduction of more than $5,000. The donor must attach the appraisal for deductions exceeding $500,000.
The IRS recommends, and in some cases requires, that landowners attach the following fully and correctly completed substantiation documents to all correctly completed Form 8283 filings:
- Correct Supplemental Statement (See instructions for the form)
- Qualified Appraisal for every easement (required for values of $500,000 and over and for historic preservation easements)
- Copy of recorded Easement (required as of 12/12 or a full and detailed description)
- Compelling and complete Baseline
- Correct contemporaneous written acknowledgement (cwa gift letter)
- Correct Mortgage Subordination
Remember that failure to attach the required documentation or correctly complete the form is a basis for a full denial of the entire deduction. By including all documents on the IRS checklist, the IRS agent is more likely to pass the transaction. This assumes that every document is correctly prepared. While donors are legally responsible for substantiating donations, land trusts may assist donors in obtaining some of these documents.
Recent experience suggests that the IRS takes Form 8283 supplemental statements very seriously and a sufficiently detailed statement is strongly recommended to be 5-10 pages long. The supplemental statement should indicate the conservation purpose of the donation, whether the donor received a permit in exchange for the donation, and whether the donation enhanced any nearby property owned by related parties. IRS officials also emphasize that an address is not an adequate "description of donated property" and have suggested referencing, as an attachment, the entire recorded easement and baseline report.
The date of the appraisal must be no earlier than 60 days prior to the contribution and no later than the due date of the return. The IRS Chief Counsel also recently confirmed that the individual who conducted the appraisal—not just the appraiser’s firm—must sign the Form 8283 and the appraisal. If more than one appraiser conducted or contributed to the appraisal, then those appraisers must also sign the form, the appraisal and any other document requiring the appraiser’s signature. The organization receiving the donation must also sign the Form 8283. While the recipient organization’s signature on Form 8283 does not represent agreement with the claimed value, the IRS has asked land trusts to use common sense and to question appraisals that seem inflated, seem excessive, or seem to use questionable methodology or undocumented assumptions (also discussed as Practice 10D of Land Trust Standards & Practices). Please remember that the "Qualified Conservation Contribution" checkbox is only for easements; gifts of land in fee should be listed as "Other Real Estate." Click here for more practical pointers on form 8283. Multiple donees (the easement holders) also all must sign; attach an extra sheet if necessary.
Contemporaneous Written Substantiation
Section 170(f)(8) of the Internal Revenue Code that all charitable gifts valued at $250 or more must be substantiated by a letter acknowledging the gift and stating that the donor received no goods or services in return (or estimating the value of goods provided in the case of a bargain sale). This requirement applies to easement donations, and several recent cases, including and Gomez, have denied deductions for the lack of a "goods and services letter." The IRS states that neither the Form 8283 nor language in the easement itself can substitute for such a letter. Although two recent tax court cases, and Consolidated Investors, suggest that substantial compliance may be adequate, land trusts shouldn't risk exposing their donors to the possibility of an audit to find out. Land trusts not providing such a letter to easement donors should do so immediately! It is far easier to write a short and simple thank-you letter (or e-mail) than to explain why you didn’t. IRS officials have also suggested that donors attach a copy of this letter to their tax return so that revenue agents won't have to launch an audit just to find out if it exists. The land trust should also keep a copy in case the donor loses theirs.
- Details on Substantiation Requirements and Sample Letters
- Practical Pointers on Substantiation Letters
IRS Guidance on Substantiation and Disclosure Requirements
- IRS Publication 1771–Substantiation and Disclosure Requirements
- Proposed Rule on Substantiation and Reporting Requirements for Charitable Contributions -- serves as "guidance" until the rule is final
- Transitional Guidance on Appraisal Rules in the 2006 PPA
Since 1976, a special exception to the general rule against charitable deductions for partial interests in property has helped conservation easement donors claim a deduction . To qualify for a deduction, such donations (and bargain sales) of easements must satisfy specific conservation purposes and other requirements that do not apply to gifts of land in fee. The 2006 Pension Protection Act created additional appraisal requirements that remain in effect even though the enhanced easement incentive, discussed below, expired on December 31, 2013. In addition to following the substantiation rules described above, donors must comply with the statutes and regulations below:
The tax code section that creates a federal income tax deduction and establishes the required conservation purposes for “qualified conservation contributions,” which include a perpetual conservation or historic preservation easement, a remainder interest or the entire interest of the donor other than a qualified mineral interest.
An essential resource that elaborates on section 170(h) and imposes more specific requirements for a donation to qualify. These include requirements such as mortgage subordination and the treatment of mineral rights that are discussed at length in our .. Mineral rights can be a particularly tricky issue, for which we recommend CCLT's
The Pension Protection Act is a 2006 law (PL109-280) that redefines who is a “qualified appraiser” and sets higher penalties for abusive appraisals. It also tightens rules for easements on “certified historic structures,” discussed below. These reforms remain in effect even though the enhanced easement incentive (also created by that law) has expired. Please see:
- The Alliance Summary of Changes in the 2006 PPA
- Analysis of Changes in the 2006 PPA from Attorney William Hutton
- Analysis of the 2006 PPA from Independent Sector
In late 2006, the IRS issued guidance defining "qualified appraiser" and clarifying that appraisals with respect to returns filed on or before August 17, 2006 did not need to meet the new Pension Protection Act requirements.
- 2006 IRS Guidance on Appraisers and Appraisals
- 2013 Chief Counsel's Memorandum on Valuation (1334039)
This letter confirms that conserved lands need not protect endangered species to qualify as protecting "a relatively natural habitat of fish, wildlife or plants."
IRS Scrutiny of Conservation Easement Donations
Congress and the IRS have greatly increased their scrutiny of conservation easements in recent years. IRS audits have questioned deductions as a result of possibly deficient substantiation and appraisals with questionable methodology, assumptions and comparables. The appeals courts sided with taxpayers in many cases. However, some mistakes and outright abuses still exist. The Alliance easement audits page may help you avoid audits in the first place by highlighting IRS concerns and the emerging case law from audits reviewed by the Tax Court. Also see:
- 2007 IRS letter to Congress highlighting continued concerns
- 2008 private letter ruling analyzing a well-drafted conservation easement
Practical Pointers for Land Trusts Regarding Easement Donations
- Appraisal Rules for Conservation Easements (Word, 169K)
- Baseline Documentation Reports (Word, 177K)
- Contemporaneous Written Acknowledgement (Word, 62K)
- Form 8283 (Word, 58K)
- Special Appraisal Bulletin for Southern Land Trusts and their Easement Donors (Word, 164K)
- (Word, 163K)
- The IRS and Asking for Stewardship Contributions (Word, 67K)
Note that this incentive expired December 31, 2014. A retroactive extension is possible, so donors should pay attention to these rules, but should not count on deducting more than 30% of their income over 6 years as allowed by permanent law.
By allowing conservation easement donors to deduct up to 50 percent of their income (100 percent for farmers, ranchers and forest landowners) for up to 16 years, the enhanced easement incentive helped modest-income landowners realize a greater tax benefit for their generous donation and boosted the pace of conservation by about 250,000 acres a year.
Congress created the enhanced incentive in the 2006 Pension Protection Act, extended through 2009 in the 2008 Farm Bill, through 2011 by section 723 of H.R. 4853, and through 2013 by section 206 of H.R. 8. The incentive expired December 31, 2013, but contributions by that date will continue to carry forward under the enhanced rules. Making this incentive permanent is the Alliance’s top policy priority; subscribe to Land Trust Advocates for the latest updates. The following resources explain how the enhanced incentive works; in addition, the above rules for all easement donations still apply, including the 2006 law creating the incentive, which has not changed in subsequent extensions.
The Alliance Frequently Asked Questions walk you through the qualifications and restrictions related to the easement incentive in great detail. We have updated the FAQs to reflect the recent expiration of the enhanced incentive and events through March 31, 2014.
Estate taxes can lead to the division, sale and development of family-owned farm, ranch and forest lands, even when landowners would prefer to keep these lands intact. Thanks to the Land Trust Alliance's advocacy with Congress, a June 1998 tax bill expanded the estate tax benefits for donated conservation easements. In 2013, Congress provided permanent estate tax relief, setting the unified credit at $5 million per individual, indexed for inflation, with a 40% rate. We’re working to improve the estate tax incentives for conservation. Many families can benefit from both estate tax AND income tax benefits of donating a conservation easement.
Reduction in Value
The most broadly applicable estate tax benefit of a conservation easement is the federal recognition that property encumbered by a conservation easement is valued for estate tax purposes as restricted, rather than at its unrestricted value. While this may seem common sense, it's helpful that Section 2055(f) of the Internal Revenue Code explicitly recognizes this to be the case. That section relates to donations by will, but the reduction has also been recognized for existing easements and post-mortem donations. In most cases, the reduction will apply even if the easement was sold or donated by a previous owner, without regard to qualification under section 170(h).
Section 2031(c) of the Internal Revenue Code provides an estate tax exclusion of up to 40 percent of the encumbered value of land (but not improvements) protected by a "qualified conservation easement." That exclusion is capped at $500,000 and is further reduced if the easement reduced the land’s value by less than 30 percent at the time of the contribution. To qualify, an easement must meet all the requirements of a "qualified conservation contribution" under section 170(h). In addition, to be a "qualified conservation easement," it must prohibit all but “de minimis commercial recreational use” and cannot qualify solely for purposes of historic preservation. This benefit is limited to the family of the original easement donor, although it can be taken by each spouse and subsequent generations. Donations by will and post-mortem donations are also eligible, but please note that such donations forego the opportunity for an income tax deduction. In 2013, Congress permanently repealed the geographic limitations (see map) that limited this incentive to about half the country prior to 2001. Other important rules and tax implications apply; for more details, see:
- Article on estate tax changes by attorney Timothy Lindstrom
- Conservation Options for Heirs to Land
- Attorney Rob Levin: “You’re Not Too Late: Post-Mortem Donations of Conservation Easements” Tax Notes, October 30, 2000, p. 661.
- Attorney Timothy Lindstrom: Tax Guide to Conservation Easements
- Attorney Stephen Small: Preserving Family Lands series, especially Book II – More Strategies for the Future
- The Alliance campaign to improve estate tax incentives for conservation
Other Estate Tax Benefits
Section 2032A of the tax code allows for the valuation of family farms at their agricultural value, with or without a conservation easement, but the requirements for taking this election are so complex that it is rarely used. Because both 2032A and 2031(c) are subject to caps, some landowners may benefit from taking both elections.
Some state inheritance or estate taxes also provide for agricultural valuations and at least one, Pennsylvania, provides an additional benefit for land under easement. Farm estate planning is an extremely complicated process; in your area may be able to help identify competent local experts.
In addition to the federal tax incentives for conservation, donors may enjoy additional tax benefits on the state or local level. Our page on provides overview information with the primary aim of inspiring other states to adopt such incentives. may have more current and comprehensive information about your state’s incentives.
Income Tax Credits
The most powerful state incentives for conservation are the transferable tax credits available in Colorado, Georgia, New Mexico, South Carolina and Virginia. Such credits can be sold to an individual or corporation with high tax liability, generating immediate income for the donor. Arkansas, California, Connecticut, Delaware, Iowa, Maryland, Massachusetts, Mississippi and North Carolina offer some form of non-transferable income tax credit. All but Arkansas, Colorado, Maryland and Mississippi apply to some fee-simple land donations as well as conservation easements. New York offers a unique tax credit, not at the time of donation, but every year in an amount equivalent to 25 percent of the property taxes paid on land under easement. .
Property Tax Benefits
It seems common sense that the assessed value of land should be reduced when it is encumbered by a conservation easement, but in practice, the property tax treatment of land under easement varies by state, county, town and sometimes the discretion of individual assessors. We recommend consulting with to discuss conditions in your area and whether an unexpectedly large assessment of land under easement may be grounds for an appeal. One unique property tax benefit is , which provides a 50-100 percent property tax exemption for land under easement.
When designing tax incentives for conservation, the federal government recognized that many properties with high conservation values, including some family farms, are held in a corporate ownership structure. As such, most of the tax benefits for conservation are also available to corporations. The complexities of a corporate ownership structure make it even more important to seek independent tax advice, but here are some general considerations.
S Corporations and Partnerships
S corporations and most partnerships are “pass through entities,” meaning that the tax implications of a charitable contribution by the business “pass through” on a proportional basis to the individual tax returns of its shareholders. Thus, tax deductions are divided proportionally and subject to the AGI limits discussed above. Each shareholder must independently qualify as a “farmer or rancher” to take the 100 percent deduction under the enhanced easement incentive.
Historically, charitable deductions by S corporation shareholders have been limited to their “basis” in company stock – a limitation that has killed many important conservation deals. A little-noticed provision of the 2008 “bailout” package lifted this restriction, allowing most S corporation shareholders to deduct their share of the full fair market value of a contribution made by the company without regard to their “basis.” This provision was recently renewed, but will expire again on December 31, 2013.
- View a discussion of this provision from attorney Stephen Small
- See our fact sheet urging renewal of this provision
C corporations pay taxes as corporate entities, and non-cash charitable deductions are generally limited to 10 percent of their adjusted gross income over no more than six years. The enhanced easement incentive only applies to a C corporation if 50 percent of its gross income comes from “the trade or business of farming” and is not publicly traded, in which case the company could deduct up to 100 percent of its income for up to 16 years -- but once the easement incentive expires December 31, 2013, all C corporations will be limited to 10%. The Land Trust Alliance supports H.R. 3568 and S. 1673, bills championed by the Alaska delegation in the 111th Congress that would automatically allow Alaska Native Corporations to qualify for the 100 percent deduction. View our letter of endorsement.
Donations of preservation easements on certified historic structures (or “façade easements”) may qualify for the same federal income tax benefits available for conservation easements. Past abuses have led Congress and the IRS to apply even greater scrutiny to façade preservation agreements and these transactions should be undertaken only using the most scrupulous and conservative methods with highly reputable preservation entities and other experts.
In 2006, Congress instituted a number of reforms, beyond those applicable to conservation easements, including a requirement to protect the entire exterior of the property and a $500 filing fee. Please see the following resources from the National Trust for Historic Preservation:
- National Trust Easement Resources page
- Summary of Changes Relating to Preservation Easements in the 2006 PPA
- Redlined Compilation of Internal Revenue Code Showing the 2006 Changes
- A Tax Guide to Conservation Easements by C. Timothy Lindstrom
- The Federal Tax Law of Conservation Easements (and 3rd Supplement) by Stephen J. Small
- Preserving Family Lands series, by Stephen J. Small especially Book I – Essential Tax Strategies for the Landowner
- Tax Benefits and Appraisals of Conservation Projects, a Standards and Practices Curriculum text by Larry Kueter and Mark Weston. This book is also available as a full featured course on The Learning Center, free to board, staff and volunteers of member land trusts and partner organizations and to individuals or professional partners joining at the $250 level and above.
- The Conservation Defense Clearinghouse also has more than 175 documents related to conservation tax law. Access requirements are the same as for The Learning Center.