Abuse of tax deductions for charitable donations of conservation lands are on the rise

Editor's Note: In December 2017, the author of this paper released an updated analysis that estimates total deductions for conservation easements in 2015 and 2016. You can read the updated estimates here.

Abuse of a tax deduction intended to encourage conservation of environmentally important land and historic buildings has cheated the government out of billions of dollars of revenue while often doing little to advance environmental protection. In a new Urban-Brookings Tax Policy Center analysis (PDF) of the provision and its misuse by taxpayers and real estate developers, Brookings Senior Fellow Adam Looney reveals a recent surge in abusive transactions. Total deductions for conservation easement contributions by taxpayers tripled between 2012 and 2014—rising from $971 million in 2012 to $1.1 billion in 2013 to $3.2 billion in 2014.

Created 40 years ago, the provision allows property owners to take a charitable deduction for donating qualified conservation easements—legal agreements that permanently limit the development or use of a property—to a charitable organization. But some donors are abusing the provision by applying grossly inflated appraisals to the value of the easement to increase their charitable deduction or by taking donations for easements that do not fulfill bona fide conservation purposes. Some real estate developers exploit these vulnerabilities by selling the rights to claim charitable deductions to investors and using the proceeds to finance development, which costs taxpayers hundreds of millions of dollars per year and undermines the program’s conservation goals...more