Welcome to our first in a series of posts about the tax rules for claiming a federal income tax deduction for conservation easements. The information in this post is current as of the date of the post. Because of court opinions and other developments, this is a rapidly evolving area of the law. This post should not be considered legal advice applicable to specific facts. If you have a legal question, please reach out for assistance.
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Rights associated with land ownership are frequently referred to as a “bundle of sticks.” Each stick in the bundle represents a right the owner has regarding the land (e.g., possess it, exclude others from it, alter it, dispose of it, use it, profit from it, make decisions about it). An owner can give away some of the rights to the property, while retaining other rights.
An easement is a nonpossessory right to land owned by another, either to enter and use it (for example, with a right-of-way easement) or to restrict the use of the land (for example, with a conservation easement). A conservation easement is a voluntary agreement through which the owner still owns the land and has the right to use it but agrees to restrict forever the development and use of the land in some way. A conservation easement that is deductible as a charitable contribution under the Internal Revenue Code may permit limited development, but whatever restriction is included in the conservation easement deed must bind future owners in perpetuity.
In 1981, the National Conference of Commissions on Uniform State Laws (now called the Uniform Law Commission) issued the Uniform Conservation Easement Act (UCEA) as a model law to be adopted by states, promoting uniformity regarding the authorization of conservation easements as enforceable real property interests. Under UCEA, a conservation easement is a nonpossessory interest in property that imposes limits or affirmative obligations for conservation purposes. Many states and the District of Columbia have adopted the UCEA. Other states, including North Carolina, did not adopt the UCEA, but adopted substantially similar provisions.
A Federal tax deduction is generally available for donations of property to charity. The donation must ordinarily be of the entire property (rather than just a partial interest in the property). Congress created an exception to this rule for conservation easements. This statutory exception allows landowners to continue to own and enjoy land while claiming a tax deduction for donating a conservation easement on that land.
Charitable contribution deductions for individuals making charitable contributions of conservation easements are generally available to those who itemize deductions. The amount of a noncash charitable contribution must exceed a percentage (0.5% of adjusted gross income for individuals) before it is deductible. For contributions exceeding this floor, the Federal income tax rules generally allow a deduction to a landowner for the fair market value of the conservation easement, up to 50% of the landowner’s adjusted gross income (AGI). This 50% percentage is noteworthy because the limit on deductibility of other long term capital gain property is generally 30% of the donor’s AGI. In the case of individuals who are qualified farmers and ranchers, the limit is 100%.
To the extent that the easement donor’s deduction exceeds the AGI limitation, the donor can carry over the remaining amount for up to15 years, which is also noteworthy because the carryover duration for other types of donated property is 5 years. A conservation easement can also be donated by an estate, but this is less significant because as of January 1, 2026, an individual can pass $15 million of property ($30 million for a married couple) free of estate or gift tax.
In addition to the Federal deduction, several states offer state income tax credits for conservation easements; some credits are transferable, others are not.
The partial interest exception permitting a Federal tax deduction applies to conservation easements if they are qualified conservation contributions. A “qualified conservation contribution” is defined in the statute as a “qualified real property interest” to a “qualified organization” that is “exclusively for conservation purposes.” For this purpose, a “qualified real property interest” means a restriction, granted in perpetuity, on the use of a property. When a conservation easement is granted with the intention of claiming a Federal income tax deduction, the transaction requires certain documentation to substantiate the deduction.
- Deed of Conservation Easement. Both because state laws require the transfer of real property interests by deed and because the conservation easement is perpetual, the grant of a conservation easement is memorialized in a recorded deed.
- Baseline Documentation Report. If the landowner reserves rights for activity on the property that could impair the conservation interests associated with the property, the condition of the property at the time of the donation must be documented.
- Gift Letter. The claim of a Federal tax deduction for the donation of a qualified conservation contribution must be substantiated by a statement from the qualified organization receiving the donation (referred to in the Internal Revenue Code as the “contemporaneous written acknowledgment”). Sometimes the statement is referred to as the “section 170 (f)(8) statement” or “CWA”.
- Form 8283. If the claimed deduction for the property exceeds $5,000, the taxpayer must complete section B on IRS Form 8283, Charitable Contributions. For conservation easements, section B should be signed and dated by the appraiser(s) who appraised the property and the recipient of the conservation easement.
- Appraisal. If the claimed deduction for property exceeds $5,000, an appraisal of the property is generally required. If the claimed deduction for property exceeds $500,000, the appraisal must be included with the taxpayer’s tax return.
- Mortgage Letter. If the property is subject to a mortgage, the mortgagee (i.e., the lender) must subordinate its rights in the property to the rights of the recipient of the conservation easement to enforce the conservation purposes of the gift in perpetuity.
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Look for subsequent posts, where we expand upon the concepts in this post. If you are considering donating a conservation easement and are interested in claiming a Federal tax deduction, please reach out for assistance.
Written by Kim Tyson and Karin Gross.