Look closely at real estate investment ventures

Not all offers to invest in property are created equal.

The IRS recently announced that it plans to treat one real estate investment strategy that is growing in popularity as a tax scheme.

On Dec. 23, 2016, the IRS announced that syndicated conservation easement transactions amount to tax avoidance transactions. This is the latest move since 2000 by the IRS to step up its reporting requirements on these kinds of tax shelter transactions.

Syndicated conservation easement transactions are those that usually involve a number of investors who donate their property as a conservation easement to a non-profit entity, such as a local government, and then take a charitable contribution deduction for several times more than what the investor paid for the land.

Generally, a broker or promoter approaches potential investors with the plan. This promoter then obtains a qualified appraisal that significantly inflates the value of the land based on unrealistic projections of the development potential of the property.

The IRS now intends to challenge the purported tax benefits from these type transactions entered into since Jan. 1, 2010, based on the overvaluation of the conservation easement. Anyone who entered into the transactions on or after Jan. 1, 2010, is now required to disclose those transactions for each taxable year in which the taxpayer participated in the transaction.

If you have any questions about potential land investments of this sort, please do not hesitate to contact us. However, we believe the old adage stands: If it sounds too good to be true, it probably is.