The last few years I’ve noticed several financial advisors I work with strongly urging our mutual wealthy clients to make conservation easement investments. Warren Sapp‘s recent 11/19/20 U.S. Tax Court win illustrates why.
Short answer: a properly structured investment in a conservation easement will reduce one’s U.S. taxable estate and generate significant operating losses that can be carried forward over several years to reduce U.S. taxable income (ala former president Trump’s primary income tax planning strategy).
So what exactly is a conservation easement, you ask? A written agreement between a private landowner and a state or local government agency in which the landowner donates their real property interests to a land trust of which the city or public gov agency is the beneficiary. The rub is the donated land must be permanently restricted in use for environmental preservation or protection purposes, e.g. such as creating a public zoo, park or beach or a land sanctuary for endangered animal and plant species.
Because valuations of real property donated to trust for purposes of conservation is a hot audit area in recent years, the keys to avoid any IRS headaches is properly appraising and not overly inflating the value of donated land which Full value can be deducted from up to 50% of taxable income and also potentially eliminate capital gains taxes.
Click this link to the Tax Court’s Opinion for some good bedtime reading.
