Conservation Easements, Real and Syndicated

Million-dollar houses keep sprouting up in the seaside village your obedient blogger calls home, but remnants of our rural past remain, thanks in part to conservation easements.

With easements, landowners can retain basic ownership while giving up, say, development or subdivision rights. In a hot real estate market such as ours, giving up such rights often leads to a drastic reduction in the property's market value. If the landowner donates the easement to a qualified entity, the reduction in value may be claimed as a charitable deduction.

Yet no good idea, it seems, goes unplundered. The Wall Street Journal reports on "the opaque world of syndicated conservation easements, transactions giving some investors tax breaks worth more than the amount they originally invested in the property."

In a syndicated easement, the organizer recruits investors who buy a piece of a partnership. The organizer identifies property, buys it, makes the donation and then parcels out the deduction. The syndicated deals are particularly popular in the Southeast, and their backers say they efficiently promote conservation by getting tax deductions to people who have the income to use them.

The key, critics say, is often an inflated and unrealistic appraisal and a relatively small network of advisers and charities supporting the transactions. The disclosures identified just 38 appraisers involved in the 552 deals.

According to IRS data, investors in syndicated conservation easements reap tax deductions averaging about 4 times their original investment.  Some do even better.

Too good to last?