Conservation Easement Appraisals: When Is a Planned Development Too Speculative?

A development plan can affect a conservation easement’s value only to the extent that the prospect of that use would influence what a knowledgeable buyer paid for the land at the valuation date. A drawing of a profitable finished project is not the same thing as evidence that the project was legally and economically probable.

Start by testing the plan’s permissions, local demand, costs and timing before debating its final value. Treasury Regulation section 1.170A-14(h)(3)(ii) requires an objective assessment of how immediate or remote development would be without the conservation restriction, including existing zoning and other legal limits. The question concerns the land and rights actually donated, not the value of an imagined completed business.

Fix the valuation date and identify the rights being compared

Determine the property, ownership, donation date, restriction and retained rights. Under the regulation’s general before-and-after approach where appropriate market sales of easements are unavailable, the easement’s value is the difference between the property’s value without and with the restriction. The appraisal must explain both sides.

Do not assume that an attractive proposed development supplies the unrestricted value or that encumbered property has no remaining value. Residential, farming, timber, recreation or other retained uses may affect what a buyer would pay afterward. The regulation also addresses contiguous property and enhancement of other property owned by the donor or related persons. A parcel-level shortcut may miss a required adjustment. Section 1.170A-14(h)(3)(i)–(ii).

Distinguish a possible zoning change from a probable one

Identify the existing designation, the change required, the deciding body, the application status and evidence of likely approval. If part of the land is in a city and part in a county, one official’s statement may not address both jurisdictions. A preliminary conversation, application, staff recommendation and final approval have different significance.

Ask what the appraisal assumes and which document supports that assumption as of the valuation date. Does a letter express the view of someone authorized to recommend or decide the matter? Does it concern the same density and uses as the appraisal? Were public-hearing, environmental or infrastructure issues examined? A favorable statement should be evaluated in its actual role, not retitled as an entitlement.

In Watson Lake Investments, LLC v. Commissioner, T.C. Memo. 2026-106 (Oct. 19, 2026), the Tax Court examined both the authority and scope of zoning evidence and the absence of a submitted rezoning application. The specific trial findings appear in our Watson Lake case analysis. The practical review here is whether each permission assumption has reliable, relevant support.

Test who would buy and how quickly

An absorption forecast predicts how quickly the market would buy the proposed lots or units. Compare it with actual sales, competing inventory, permits, household or employment trends, price points and the features of the proposed project. Explain why the expected buyers would choose this location at those prices.

A nearby project’s slow sales may be significant contrary evidence. A distant project’s success may offer useful information but requires an explanation of market differences. Neither geographic proximity nor a shared label such as “gated community” makes two developments economically equivalent.

Keep separate assumptions for residential lots, commercial sites, multifamily housing and any other component. Demand for one does not establish demand for all. A forecast that relies on several markets strengthening at once should identify evidence for each premise and how delays would affect the overall project.

Reconcile the proposed value with actual purchases and comparables

A recent arm’s-length purchase of the property is important evidence. If the appraisal is much higher, identify what changed: Legal permissions, credible market conditions, infrastructure, physical improvements or another supported value driver. A later syndication price or advertised deduction ratio does not by itself explain a change in the land’s fair market value.

Review both selected and rejected comparable sales. Ask why local transactions were excluded and how the chosen transactions were adjusted for location, size, timing, rights, condition and terms. A property may have distinctive features, but calling it unique is not a reason to skip the market evidence without analysis. Watson Lake, pages 27–39, explains how those issues affected the competing appraisals there.

Follow the cashflow through costs and time

If an appraisal uses projected development income, inspect the underlying calculation rather than only the discounted final number. Identify gross receipts, development and infrastructure expenses, environmental costs, selling and holding costs, timing and the treatment of risk. Each material assumption should have a source and should fit the same development scenario.

Check that expenses actually reduce revenue in the model. Check that the sales period used for discounting matches the absorption narrative. A calculation assuming all lots sell immediately may avoid years of discounting and holding costs even while another part of the report describes a phased project. Numerical precision cannot repair that inconsistency.

The October 19 opinion illustrates both a failure to subtract expenses in one model and an unsupported one-year sellout assumption in another. Its reasoning does not make income-based appraisal universally unavailable; it shows why the inputs and implementation must be defensible. Watson Lake, pages 39–41.

Ask for a traceable assumption review before relying on the result

Prepare an assumption register identifying each permission, use, sales price, absorption period, cost and adjustment; the dated supporting document; contrary evidence; and any unresolved issue. Retain the original appraisal, later versions and the explanation for changes. This makes it possible to distinguish a corrected calculation from a newly invented premise.

Valuation is only one part of a conservation-contribution analysis. Current transaction rules, substantiation, conservation requirements and other limitations require their own review. An appraisal’s defensible number does not establish eligibility for the deduction by itself. This article does not supply an appraisal, a permissible discount rate or a guaranteed tax result.

The separate Barney analysis shows why valuing transferred assets and consideration can present a different charitable-contribution problem. For a land-easement review, bring the deed, acquisition and sales records, zoning materials, market studies, complete appraisal and model to the tax practice. The first discussion should identify the weakest unsupported assumption, not merely defend the claimed total.