Conservation Easement Tax Deduction Under IRC 170(h)

The conservation easement tax deduction under Internal Revenue Code Section 170(h) lets a property owner who permanently restricts land use for conservation or historic preservation claim a federal income tax deduction equal to the drop in the property’s fair market value caused by the restriction. Individuals can generally deduct up to 50% of adjusted gross income each year and carry any unused portion forward for up to 15 additional years.¹ The deduction is real and substantial, but it depends on getting three legal requirements right, following documentation rules that are stricter than almost any other charitable gift, and steering clear of valuations the IRS treats as abusive.

What Qualifies as a Deductible Easement

Three requirements have to be satisfied together. Miss one and the deduction disappears entirely.

The donation must be a qualified real property interest. In practice, that means a permanent restriction on how the land can be used, granted in perpetuity. Development rights are extinguished forever, not paused. You keep title and can continue using the property in ways consistent with the easement, but neither you nor any future owner can develop it beyond those terms.²

The easement must go to a qualified organization. Federal, state, and local government agencies qualify, as do publicly supported 501(c)(3) charities that meet the public support tests.³ Local land trusts and national environmental groups typically fill this role. The organization must have the resources to monitor and enforce the restrictions over time, and the deed must prevent transfer of the easement to any non-qualified entity.

The donation must be made exclusively for conservation purposes. Any rights you reserve in the deed have to be consistent with those purposes. If the deed lets you build structures or run activities that could damage the values being protected, the IRS can disallow the whole deduction. The perpetuity requirement also forces the deed to address what happens if a court ever extinguishes the easement: the receiving organization must get a proportionate share of any sale proceeds, based on the ratio of the easement’s value to the total property value at the time of the gift.⁴

The Four Conservation Purposes

The easement has to serve at least one of four purposes defined in the statute.⁵

Outdoor recreation or education by the general public. Hiking, fishing, nature study, and similar uses. This category typically requires some form of public access.
Protection of a natural habitat for fish, wildlife, or plants. Easements protecting habitat for rare or threatened species can qualify even without public access.
Preservation of open space, including farmland and forest land, if the preservation either provides scenic enjoyment to the general public or advances a clearly identified federal, state, or local conservation policy. This category carries an extra requirement: the preservation must yield a significant public benefit, judged partly by how threatened the area is by development. A parcel surrounded by sprawl gets stronger weight than a remote tract facing no pressure.
Preservation of a historically important land area or a certified historic structure. This covers property listed in the National Register of Historic Places and buildings in a registered historic district that the Secretary of the Interior has certified as historically significant. Historic easements usually restrict changes to a building’s exterior or landscape and expect some level of public visual or physical access.⁶

How the Deduction Amount Is Calculated

Valuation uses the before-and-after method. An appraiser determines the fair market value of the property immediately before the easement is granted, then the value afterward with the restrictions in place. The difference is your deduction.⁴ If the easement covers only part of a larger contiguous parcel you or your family own, the appraiser must value the entire contiguous property, because the restriction can affect the value of adjacent land.

The “before” number turns on the property’s highest and best use: the most profitable legal use that is physically possible and financially feasible without an easement. If the land could realistically support a 200-unit subdivision and the easement reduces it to agricultural use, the deduction reflects that gap. This is where nearly every dispute with the IRS starts. Inflated “before” valuations that assume speculative development scenarios are the single biggest reason easement deductions get challenged and lost.

If you received anything in exchange for the easement, whether cash, a density transfer, or a zoning variance, you have to reduce the deduction by the value of what you received.

Deduction Limits and Carryforward

Individuals can deduct the value of the easement up to 50% of adjusted gross income, reduced by other charitable contributions claimed the same year. Unused amounts carry forward for up to 15 succeeding tax years, well beyond the five-year carryforward for most other charitable gifts.⁷

Qualified farmers and ranchers get a better limit. If more than 50% of your gross income comes from farming, you can deduct up to 100% of AGI, again reduced by other charitable contributions.¹ To claim the higher limit, the easement must require the land to remain available for agricultural production. For a corporate farmer or rancher, the 100% limit applies only if the corporation’s stock is not publicly traded.

Mortgage Subordination

If the property carries a mortgage, the lender has to subordinate its interest to the easement before the donation. Without subordination, the easement is not protected in perpetuity, because the lender could foreclose and wipe out the restrictions. The IRS treats this as a hard rule with no workaround: no subordination in place at the time of the gift, no deduction.⁴ Courts have upheld this even when the borrower obtained subordination later. The subordination has to exist on the day the easement is recorded.

Documentation the IRS Requires

Paperwork demands here go beyond what applies to most charitable gifts, and missing a single element can cost the full deduction.

Qualified Appraisal

A qualified appraisal has to be performed by an appraiser with verifiable education and experience valuing the type of property involved. The appraiser must either hold a recognized professional designation or have completed relevant college-level coursework plus at least two years of experience with that property type.⁸ It must be completed no earlier than 60 days before the donation and no later than the due date of the return for the year of the contribution. The appraisal describes the property, explains the valuation methodology, and carries the appraiser’s signature and taxpayer identification number.

Baseline Documentation Report

The baseline report captures the property’s physical condition at the time of donation through maps, photographs, descriptions of existing structures, environmental features, and the specific conservation values being protected.⁴ Both you and the receiving organization sign it. It becomes the reference point for future monitoring and enforcement. A report too vague for a third party to identify the protected values puts the deduction at risk.

Contemporaneous Written Acknowledgment

For any charitable contribution of $250 or more, you need a written acknowledgment from the donee organization describing the property, stating whether the organization provided any goods or services in return, and giving a good-faith estimate of the value of any such goods or services.⁵ You need this acknowledgment in hand before you file your return or the due date (including extensions), whichever comes first. It is separate from Form 8283.

Form 8283

IRS Form 8283 must be filed with your return for any noncash contribution over $500. Conservation easements use Section B, which reports the property’s fair market value, your cost or adjusted basis, and the date you acquired the property.⁹ The qualified appraiser signs Part IV; an officer of the donee organization signs Part V. If cost basis is unavailable, attach a written explanation. If the claimed deduction exceeds $500,000, the entire qualified appraisal must also be attached to the return.

Keep copies of the recorded deed, baseline report, appraisal, written acknowledgment, and Form 8283 for at least three years after the carryforward period ends. Because the carryforward runs up to 15 years, that can mean holding records for more than 18 years after the donation.

Special Rule for Partnerships and S Corporations

For contributions made after December 29, 2022, if the charitable deduction allocated to partners or S corporation shareholders exceeds 2.5 times the sum of each partner’s relevant basis in the contributing entity, the entire deduction is disallowed. Not just the excess.¹⁰

Three exceptions apply:

Three-year holding period. The disallowance does not apply if at least three years have passed since the entity acquired the property and at least three years have passed since each partner or shareholder acquired their interest.
Family-owned entities. If one individual and members of that individual’s family hold at least 90% of the interests in the entity, the limit does not apply, provided the family held at least 90% of the interests in the property for at least one year before the contribution and at least 90% of the deduction is allocated to those family members.
Certified historic structures. The 2.5x limit does not apply to easements whose conservation purpose is preserving a certified historic structure.

Staying under the 2.5x ratio does not guarantee the deduction survives audit. The IRS can still challenge the valuation, the conservation purpose, or any other requirement.

Syndicated Deals and Overvaluation Penalties

The IRS has designated syndicated conservation easement transactions as listed transactions, one of the most serious classifications in tax enforcement. The pattern is familiar: a promoter creates a partnership or LLC, investors buy in, the entity acquires land and donates an easement, and each investor receives a charitable deduction that equals or exceeds 2.5 times the amount invested.¹¹ The IRS treats this pattern as abusive because the deductions typically rely on inflated appraisals disconnected from actual market conditions.

Participants must file Form 8886 with their return and send a copy to the IRS Office of Tax Shelter Analysis.¹² Failing to file this disclosure triggers penalties under Section 6707A, keeps the statute of limitations open indefinitely, and raises the accuracy-related penalty from 20% to 30% for any underpayment tied to the transaction.

The standard accuracy-related penalty for a substantial valuation misstatement is 20% of the resulting tax underpayment. A “substantial” misstatement means the claimed value was 150% or more of the correct value. If the claimed value reaches 200% or more of the correct amount, a “gross” valuation misstatement, the penalty doubles to 40%.¹³ In syndicated cases the IRS has consistently pushed for the 40% rate, and courts have regularly agreed.¹⁴ Reasonable-cause defenses based on reliance on a qualified appraiser exist, but the IRS sets a high bar, particularly when the deal had the hallmarks of a syndicated arrangement from the start.

A disallowed deduction also brings interest on the underpayment running back to the original filing date. On a large easement claim, the combined penalty and interest can exceed the tax benefit the donor was chasing.

1
Internal Revenue Service. Publication 526 – Charitable Contributions
2
Internal Revenue Service. Introduction to Conservation Easements
3
Internal Revenue Service. Exempt Organizations Annual Reporting Requirements – Form 990 Schedules A and B Public Charity Support Test
4
eCFR. 26 CFR 1.170A-14 – Qualified Conservation Contributions
5
Office of the Law Revision Counsel. 26 USC 170 – Charitable, Etc., Contributions and Gifts
6
eCFR. 36 CFR Part 60 – National Register of Historic Places
7
Office of the Law Revision Counsel. 26 USC 170 – Charitable, Etc., Contributions and Gifts
8
eCFR. 26 CFR 1.170A-17 – Qualified Appraisal and Qualified Appraiser
9
Internal Revenue Service. Instructions for Form 8283 – Noncash Charitable Contributions
10
Federal Register. Statutory Disallowance of Deductions for Certain Qualified Conservation Contributions Made by Partnerships and S Corporations
11
Internal Revenue Service. Notice 2017-10 – Syndicated Conservation Easement Transactions
12
Internal Revenue Service. Requirements for Filing Form 8886 – Questions and Answers
13
Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments
14
Internal Revenue Service. Chief Counsel Advice 2021001 – Settlement of Syndicated Conservation Easement Transactions