Tag Archives: Easements

Update on Easements and Taxes

Photo by John-Morgan.

A couple weeks ago, GM alerted you about potential problems with taking a tax write-off for donating a preservation easement on your house. What inspired the notice was that the Department of Justice won a lawsuit against an organization that was accepting easements and informing people that they could write-off up to 15% of the value of the home in doing so.

The thrust of DOJ’s action was that the trust was misleading people when it told them they could write-off that much. But GM mistakenly conflated that argument with the fact that the IRS itself is highly dubious that easements have any value and thus should not provide any tax write-offs, particularly if the home is protected by historic preservation laws. GM argued that that was faulty logic because preservation easements do in fact offer stronger protections than the laws do. Continue reading

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IRS Cracking Down on Easement Tax Dodge

As reported by the Post (which has turned the issue into quite a hobby-horse) the IRS is cracking down on a tax shelter that many Georgetowners may themselves have used.

The basic idea is this: property owners can give conservation easements to historical preservation groups which gives the non-profit the right to object to any changes made to the facade of the house. The donor of the easement can then theoretically write-off from his or her taxes the estimated reduction of the value of the house.

The problem, as first identified by the Post several years ago, is that homeowners grossly overestimate the value of the reduction in home value. The IRS argues that when a homeowner in a neighborhood like Georgetown encumbers his home with a facade easement, he’s not really encumbering his home with any more restrictions than already exist due to the aggressive preservation laws already in place.

One company that was pitching this shelter apparently was telling homeowners that they could write off 15% of the value of their home after giving the easement. The IRS thinks that’s a huge over-estimate. And now a federal judge agrees.

According to the government complaint, the defendants falsely told prospective customers that, in exchange for donating easements on their historic properties preventing façade alteration, the customers could claim charitable deductions equal to 10 to 15 percent of the property value, and that this range reflected official IRS policy. In fact, the complaint alleges, the IRS never had any such policy, and the actual value of façade easements, if any, must be determined on a case-by-case basis. The complaint also alleges that the defendants manipulated the easement appraisal process by steering donors to appraisers who the defendants knew would employ the 10-to-15-percent valuation method, leading to improper appraisals that yielded large tax deductions regardless of the easements’ actual effect on property value.

The IRS seems to be basing most of its case on the false statements. But it also appears to be assuming that easements on houses in places like Georgetown are kind of worthless given the presence of entities like the Old Georgetown Board, which already restrict what a homeowner can do. GM doesn’t think that’s quite right. Continue reading

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