Investing in Conservation Easements

Q. Should I invest in conservation easements? I keep hearing good things about them but don’t really understand how they work or whether it is a good idea.

Conservation Easement Investments Have High Abuse Potential

A. Conservation easements are a great idea, in theory. Here’s the way they work. Basically, if you are willing to donate your property for the public good, and that donation reduces the value of your property, you get to take a tax deduction equal to the reduction in value of your property. You can use an amount of it up to 50% of your adjusted gross income as a deduction in any given year. Seems fair, right? It encourages the wealthy to do things that promote the public good, particularly the environment.

However, the amount of deductions being taken for conservation easements have been skyrocketing in recent years, and when you look into it, the increase isn’t what you might think. You see, there are now people who are buying the properties (often in syndications) primarily for the purpose of then putting a conservation easement on it. It’s an investment.

“But wait,” you say. If the value of the property drops by the amount of the deduction, and you only get 37% (+ state) of the easement back as a deduction, how is that a winning move? That’s like donating money to charity for the tax deduction and being surprised when you have less money afterward.

Well, the way they become investments is by, at a minimum, abusing the intent of the tax code

Keep reading this article on The White Coat Investor.