How do conservation easement deductions work?
High risk for syndicated deals; fact-specific for landowners
IRC §170(h) allows a deduction for donating a perpetual conservation restriction on real property to a qualified organization. For partnership and S corporation gifts, §170(h)(7) disallows the entire deduction if it exceeds 2.5 times the owners' relevant basis, unless an exception applies. Syndicated conservation easement transactions are listed transactions under Treas. Reg. §1.6011-9 and require disclosure on Form 8886.
Reviewed by Ebot Mbi, CPA, EA · Last reviewed · Law and figures current as of September 17, 2026
Key takeaways
- The easement must be granted in perpetuity to a qualified organization for a recognized conservation purpose.
- For pass-through entities, a deduction above 2.5 times the owners' relevant basis is disallowed in full.
- Syndicated easement deals are listed transactions: participants must file Form 8886.
- A §170(h)(7) disallowance carries a 40% accuracy-related penalty.
- Landowners who donate individually are not subject to the 2.5x test but still need a qualified appraisal and deed that meet the regulations.
What it is
A conservation easement is a legal restriction that permanently limits how land can be developed or used, donated to a land trust or government agency. The donor keeps ownership and can often continue farming, ranching, or living on the land, but gives up development rights forever. The deduction generally equals the drop in the property's value caused by the restriction.
Legitimate easements protect farmland, habitat, open space, and historic properties. Syndicated deals, where investors buy into a partnership that donates an easement valued at many times their investment, have been the focus of years of IRS enforcement and legislation.
What the law says
IRC §170(h) defines a qualified conservation contribution as a qualified real property interest given to a qualified organization exclusively for conservation purposes, which must be protected in perpetuity. Treas. Reg. §1.170A-14 sets detailed requirements for the deed, baseline documentation, mortgage subordination, and valuation.
SECURE 2.0 added §170(h)(7), effective for contributions made after December 29, 2022. For partnerships and S corporations, a contribution is not treated as a qualified conservation contribution if the amount exceeds 2.5 times the sum of each partner's relevant basis. Exceptions apply if the three-year holding period is met, if substantially all of the entity is owned by members of the same family, or for certain historic structures. Under §6662(b)(10) and (h), a disallowance under §170(h)(7) carries a 40% accuracy-related penalty.
Treas. Reg. §1.6011-9, final in October 2024, identifies syndicated conservation easement transactions as listed transactions. These are deals in which investors receive promotional materials suggesting a charitable deduction at least 2.5 times their investment. It carries forward the listing that began with Notice 2017-10.
Requirements and tests
A valid easement deduction requires all of the following:
- A qualified real property interest, such as a perpetual restriction on use, given to a qualified organization with the commitment and resources to enforce it.
- A conservation purpose: public recreation or education, significant habitat, open space with significant public benefit, or a historically important land area or certified historic structure.
- Protection in perpetuity, including subordination of any mortgage, as required by Treas. Reg. §1.170A-14(g)(2).
- Baseline documentation of the property's condition at the time of the gift.
- A qualified appraisal by a qualified appraiser, Form 8283 with the required signatures, and, for pass-through entities, compliance with §170(h)(7).
- Percentage limits: generally 50% of AGI with a 15-year carryforward, or 100% for qualified farmers and ranchers.
How it works
For an individual landowner, the appraiser values the property before and after the restriction, and the difference, reduced for any increase in value of other property you own, is the deduction, subject to AGI limits. For a partnership, the deduction passes through to partners, and the 2.5x test compares the total deduction with the sum of the partners' relevant basis in the partnership's real property.
If the test is failed and no exception applies, the entire deduction is disallowed, not only the excess, and the 40% penalty applies to the resulting underpayment. Participants in a listed transaction must also file Form 8886 with their returns and with the IRS Office of Tax Shelter Analysis.
Assumptions: Deal A: a partnership formed in 2026; investors contribute $100,000 in total; partners' combined relevant basis in the land is $100,000; the partnership claims a $400,000 easement deduction; no §170(h)(7) exception applies.; For Deal A, assume the disallowance increases the partners' combined federal tax by $140,000 (a 35% combined rate, used for illustration only).; Deal B: an individual who has owned ranch land for 15 years donates an easement appraised at $200,000; AGI $300,000; not a qualified farmer.; Interest and the §6707A penalty are not computed.
| Deal A: 2.5 × $100,000 relevant basis | $250,000 |
|---|---|
| Deal A: deduction claimed / allowed | $400,000 / $0 |
| Deal A: 40% penalty on the $140,000 underpayment | $56,000 |
| Deal B: §170(h)(7) test | Not applicable (individual owner) |
| Deal B: 2026 deduction limit (50% × $300,000) | $150,000 |
| Deal B: carryforward to later years | $50,000 |
The syndicated claim is disallowed in full and carries a $56,000 penalty in this example, while the individual easement is deductible over two years if the deed and appraisal meet the regulations.
Illustration only; not a projection of your results.
Risks and IRS scrutiny
The IRS has pursued syndicated easement cases through audits, litigation, promoter investigations, and criminal prosecutions, and the IRS 2026 Dirty Dozen list names syndicated conservation easements among noncash contribution schemes. Common issues in individual cases include inflated appraisals, deeds that do not protect the easement in perpetuity, and missing mortgage subordination. Penalties can include the 40% gross valuation misstatement penalty, the §6707A penalty for failing to disclose a listed transaction, and the §6662A reportable transaction penalty. Promoters and appraisers face their own penalties.
Who it is not for
This is not for anyone offered a deduction multiple on an investment, or for anyone unwilling to restrict land permanently. It is also not a fit if the property lacks a genuine conservation purpose or if a lender will not subordinate its mortgage.
Individual landowners should also expect the IRS to review the appraisal closely and should plan for the cost of a qualified appraisal, legal review of the deed, and baseline documentation.
How ebotCPA helps
We review the proposed easement's conservation purpose, deed, appraisal, and, for entities, the §170(h)(7) computation and disclosure requirements, and we prepare Form 8283 and any required Form 8886. We coordinate with your attorney, who drafts the legal documents.
Book a $497 Case Analysis to have Ebot Mbi, CPA, EA review your facts before you act.
We coordinate with your attorney, who drafts the legal documents.
Frequently asked questions
Are conservation easement deductions legal?
Yes, under IRC §170(h), when the easement meets the conservation purpose, perpetuity, and appraisal rules. Syndicated deals are listed transactions and draw heavy enforcement.
What is the 2.5 times rule for conservation easements?
Under IRC §170(h)(7), a partnership or S corporation contribution exceeding 2.5 times the owners' relevant basis is disallowed in full unless an exception applies.
Do I have to file Form 8886 for a conservation easement?
If the transaction is a syndicated conservation easement described in Treas. Reg. §1.6011-9, yes. Other easements may not require it; have your facts reviewed.
What penalties apply to a disallowed syndicated easement?
A 40% accuracy-related penalty for §170(h)(7) disallowances or gross valuation misstatements, plus §6707A and §6662A penalties if the listed transaction was not disclosed.
Have facts like these?
Book a $497 Case Analysis to have Ebot Mbi, CPA, EA review your facts before you act.