Land-preservation tax breaks face IRS heat but still have uses

A tax break for protecting land is getting fresh political support while the IRS continues to challenge abusive versions of the strategy. For landowners, the distinction matters: conservation easements can reduce taxes, but the details determine whether they look like long-term land planning or an audit target.

CNBC reported that House and Senate farm bill proposals would create a new program to help fund landowners who agree to keep forests intact instead of selling or developing them. More than a dozen states also offer tax credits for land donations, and CNBC said New York, Colorado and Georgia have expanded conservation easement programs in recent years.

A conservation easement lets a property owner keep title to land while giving up certain development rights. In plain English, the owner agrees to permanent limits on how the land can be used, often to protect farms, ranches, wildlife habitat or open space.

The owner can donate those restricted rights, or sell them for less than their fair market value, to a land trust, government agency or another qualified organization. In return, the owner may be able to claim a charitable tax deduction. CNBC reported that owners often can still live on the land and use it for activities such as hunting or fishing, as long as those uses fit the easement terms.

Why the IRS is watching

The IRS crackdown has focused on syndicated conservation easements, according to CNBC. In those transactions, promoters sell stakes in land to investors, donate an easement and use an inflated valuation to generate deductions that can exceed what investors paid.

The U.S. Tax Court last week cut a $41.6 million deduction claimed by an Alabama partnership to $800,000, CNBC reported, siding with the IRS that the valuation depended on speculative assumptions about the property’s potential as a limestone quarry.

Congress moved in 2022 to cap conservation easement values as a way to curb syndicated deals, according to CNBC. The IRS is still working through roughly 1,100 cases and in May offered settlement terms for eligible taxpayers involved in conservation easement disputes.

Where easements can still make sense

Lawyers who work with conservation easements told CNBC the tool remains useful for some individual and family landowners. Florida attorney Keith Fountain said his clients tend to be people who already own land and want to preserve it, not investors buying into promoted tax deals.

Fountain told CNBC that some ranching clients sell easements to keep property in the family, pay down debt or buy out younger relatives who do not want to stay in ranching. When owners sell an easement at a discount, they can receive cash and potentially claim a deduction for the gap between the sale price and fair market value, CNBC reported.

Fountain also said many clients choose discounted sales rather than outright donations because donations can draw IRS attention, even when the taxpayer is not part of a syndicated deal.

Carolyn Schenck, a former IRS national fraud counsel who joined Caplin & Drysdale in 2025, told CNBC that abuse by some taxpayers does not erase the policy value of properly supported conservation easements. She said there is a view at the IRS that a well-documented easement is not a loophole.

Valuation is the pressure point

Diana Norris, associate director for conservation defense at the Land Trust Alliance, told CNBC that Tax Court disputes over the past two years have often centered on the value of development rights being given up. She said that focus has reduced uncertainty compared with earlier cases that turned on technical problems in deeds or donation paperwork.

Attorney Steve Small, who helped write the tax-code rules for conservation easements while at the IRS in the early 1980s, told CNBC that easements are not risky when advisers follow case law and handle the transactions regularly. He said unrealistic deduction expectations remain a major problem, especially after years of promoted syndicated deals.

Small told CNBC that for recently purchased property, the deduction should generally be a percentage of the purchase price rather than a multiple of it. He also said landowners must account for benefits to nearby property they or relatives own, such as improved views or privacy, because that added value can reduce the deduction.

For taxpayers considering an easement, the takeaway from the lawyers CNBC interviewed is practical rather than flashy: documentation, valuation and adviser quality carry the weight. The tax break still exists, but the IRS has made clear it is watching how the numbers are built.

This story draws on original reporting from CNBC.