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A Deduction You Have To See To Believe

Believe it or not, you may be entitled to claim a charitable tax deduction relating to real estate without giving away any property. All you have to do is agree to preserve a particular kind of property in its current condition, a concession known as a conservation or “scenic” easement.

And though this charitable deduction has typically been reserved for people who have a place in the woods or the mountains, it may also be claimed by city dwellers who own historically significant property.

To get this tax break, you strike a deal with a government entity or a tax-exempt charity to restrict your use of the land. You might be limited in terms of the height and type of buildings you may erect on the land, or prohibited from removing trees, installing utility lines, or putting up signs. (Often, these may be things you wouldn’t want to do, even without an easement.)

In addition, you’ll generally be required to provide some degree of public access. You might need to set aside land for a hiking trail, for example, or let visitors view a scenic vista.

In return, you can claim a charitable deduction on your tax return equal to the value of the donated easement. As a rule of thumb, that value is the difference between the value of the land before and after you grant the easement. But you’ll need an assessment by a reputable real estate appraiser to pin down a reliable number.

Easements based on four kinds of land use may qualify for this charitable deduction:

1) Preserving land for outdoor recreation or public education

2) Protecting the natural habitats of fish, wildlife, plants, or another ecosystem

3) Preserving a historically important or a certified historic structure

4) Preserving open space either for the public’s scenic enjoyment or to further a federal, state, or local government conservation policy yielding a significant public benefit

Normally, the tax deduction for gifts of real estate and other property is limited to 30% of your adjusted gross income (AGI). If the gift is worth more, you can carry over the excess amount to list on later tax returns, for up to five years.

However, thanks to recent law changes, the deduction limit is increased to 50% of AGI (and 100% for some farmers and ranchers). And in those cases, the five-year carryover period is extended to 15 years. These enhanced tax benefits, which were previously approved only temporarily, are now permanent.

The only other catch for deducting the value of a scenic easement is that your gift must be made in perpetuity. That means that anyone who buys the property from you or your heirs will be obligated to honor the restrictions you granted on the use of the land.