When
you make a charitable contribution of anything other than money or marketable
securities, there will always be a valuation issue. At least, it will usually
be clear what it is that you are giving away. A conservation easement is different. You are keeping the property as it is and
giving up all the hypothetical possibilities.
Sometimes the greatest charity
of all is simply doing zip, nada, and nothing. Well, at least that may be the
case when it comes to being charitable with land. Why? Because the charity
consists in preserving the land from development instead of capitalizing on its
highest and best economic use.
Enter the conservation easement.
The perennial problem with
easements, however, is the question of valuation of the “potential value” of
the land.
The entire point behind an
easement is that the land itself (or the façade, as the case may be with
urban-dwellers) has intrinsic value worth saving. This can be hard to put into
concrete numbers. But then again, there always remains the risk that certain
persons may look to maximize the charitable deduction for an easement through creative valuation.
This theme was picked up in a
recent Forbes article titled “Conservation Easement No Deduction For
Hypothetical Vineyard.” The
lesson is less outlandish than the title suggests – not every problem comes
from supposing the remote possibility of a vineyard, a stadium, or a
skyscraper. Rather, when asking for the easement you need to settle upon one
out of every possible use of the land and the IRS has to agree that potential
use is the best and most likely use.
The IRS has a presumption against
any big dreams, you might say, and that can be difficult to overcome.
Proper valuation is a key
component of any purchase, gift, or act of charity. When it comes to easements,
however, the subject of valuation may be more difficult to capture accurately.
Placing an effective easement
means building a case and an effective understanding of the true potential to
any land given.
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Reference: Forbes (June
5, 2013) “Conservation Easement No Deduction For
Hypothetical Vineyard”