CONSERVATION EASEMENTS BY PASS-THROUGH ENTITIES
Here are some key principles that underlie the specific advice I provide to clients who are thinking of making a charitable conservation contribution of real estate owned by a pass-through entity to the recipient of their choosing. These general principles may apply to specific facts and circumstances in unique ways, so please reach out for an individual consultation if you would like to explore your options with me.
- New 2022 Law. In December 2022, a law was passed that limits charitable conservation deductions taken under Section 170(h) by partnerships and certain other entities (a “Pass-Through Entity”).
- Syndicated Transactions. The law, passed as Section 170(h)(7) (the “Pass-Through Limitation”), was aimed principally at syndicated conservation easement transactions. However, the Pass-Through Limitation applies to other transactions as well.
- General Scope of Provision. All conservation easement contributions made by Pass-Through Entities are affected if the gift would be in excess of 2.5 times the sum of the investments of the members, partners, or shareholders.
- Three Exceptions to the Rule. There are three (3) exceptions to the Pass-Through Limitation: (1) conservation easements made outside a 3-year holding period of the Pass-Through Entity; (2) conservation easements made by family partnerships; and (3) conservation easements made to preserve certified historic structures.
- Some Open Items. Like many complex provisions of federal tax law, the Pass-Through Limitation leaves some unanswered questions and planning opportunities. Among other issues, some uncertainties may involve the addition of land to be preserved or the withdrawal or admission of partners, all of which may require that the 3-year period commence anew.
- “Pure” Donations. The Pass-Through Limitation amends Section 170(h)(7) only. The Pass-Through Limitation does not apply to outright charitable gifts of real estate. These gifts are generally governed by Sections 170(a) and 170(b)(1)(B)(i).
More In-Depth Study Is Available. This Newsletter is also available as a more detailed In-Depth Study. If you, or someone you are in contact with, have an interest, please contact us. If you have questions about any real estate or federal income tax topics, we can schedule a call to discuss your concerns.
No Legal Duty Is Created. This Newsletter is for general information only and does not create any relationship between the William R. Sylvester Law Firm, LLC, or William R. Sylvester, and any other person or entity. A legal relationship will arise only on the mutual execution of a written retainer agreement.
FALL 2023