How to Get a Charitable Tax Deduction Without Donating Anything

It’s very rare in the tax world when you can “get something for nothing.” But that’s essentially what happens when a real estate owner donates a qualified conservation easement to charity. In essence, the property owner is merely agreeing to keep the land the way it is now, thus giving away virtually “nothing.” The “something” he or she receives? A charitable tax deduction based on the value of the easement.

Now the new Tax Increase Prevention Act (TIPA) – signed on December 19, 2014 – sweetens the pot for taxpayers who donated conservation easements last year. It extends two expired tax breaks for these donations retroactive to January 1, 2014. As with other extensions under TIPA, the two provisions were wiped off the books again on December 31, 2014.

Here’s the lay of the land: The IRS says that a deduction is allowed when an interest is donated to a qualified charitable organization for certain specific conservation purposes. A write-off may be claimed for any one of the following reasons.

Preservation of land for outdoor recreation or education of the general public. This includes property preserved for fishing and boating or land designated for nature or hiking trails. Public use of the property must be substantial and regular.
Protection of a natural habitat of fish, wildlife or plants or a similar ecosystem. Access by the public may be limited for environmental reasons.
Preservation of a historically significant historic structure. To qualify for a deduction, the public must have some access.
Preservation of open space either for the scenic enjoyment of the general public or pursuant to a government conservation policy. For this purpose, visual access is sufficient and physical access to the property isn’t required.

As you can clearly see, donations may be available without having visitors tromping across the land or littering your property. Just offering a scenic view from afar may be sufficient. In other cases, however, full or limited public access must be granted.

The deduction for a conservation easement is based on its fair market value (FMV). Don’t take any shortcuts: Have the value established by an independent professional appraiser. The courts have consistently overturned deductions based on self-appraisals or otherwise inflated write-offs .

Normally, the annual charitable deduction for such donations of property is limited to 30 percent of the taxpayer’s adjusted gross income (AGI). Any excess is carried over for up to five years. But two enhancements in these rules were extended by TIPA.

The usual 30 percent AGI limit is raised to 50 percent for 2014. For a farmer or rancher earning at least half of their income from the land, the deduction can be equal to 100 percent of AGI.
A taxpayer making a conservation easement may carry forward any excess for up to 15 years. This replaces the usual five-year carryforward period for a donation made in 2014.

Last, but not least, there is one catch: The donation of a conservation easement must be made “in perpetuity.” This means that the donor’s heirs or any succeeding owners are legally barred from altering the land or using it for other purposes such as real estate development. The property has to remain in its pristine state.