Category : Conservation Easements

Redeploying Tax Savings From a Conservation Easement to Provide Tax Free Retirement Income

  • Robert L. Boggess
  • May 10, 2018

A married couple in their mid-forties approached me to have a financial analysis based on my Strategic Tax Mitigation™ protocol. Their chief concerns included: the lack of strategies they had to reduce their current taxes and to develop a better retirement income program. After the review, I developed a plan to meet the clients’ goals and objectives.

  1. The clients currently generate approximately $467,000 annual income.
  2. The clients each have older Variable Universal Life (VUL) Insurance policy

With regards to income, a Charitable Contribution of a Conservation Easement (IRC § 170h) could be used to reduce taxes due to Ordinary Income (see Conservation Easement case study). In this couple’s case, a tax savings of approximately $24,500/yr could be achieved. Using this strategy, their taxes could be reduced from $123,500 to $99,000 in the proposal year.

With regards to their life insurance policies, Variable Universal Life policies follow the market. Cash values in the policy can go up or down depending on the direction of the market. When I explained the volatility issues the clients also became concerned. The policies were out of date and didn’t meet the clients’ desire for creating additional income in retirement.

The following proposal was made:

Generate tax savings from the use of the conservation easement, then redeploy the savings to invest in a better life insurance policy. The tax savings from the Conservation Easement could be used to help create a life insurance policy more aligned with the clients’ goals and objectives.

The existing VUL insurance policy was converted into an Indexed Universal Life (IUL) insurance policy by using a IRC § 1035 exchange. The clients were lawfully able to make this exchange without paying taxes. The two VUL policies had a cash value of approximately $200,000. The annual $12,000 premium for both clients was increased by $18,000 for a total of $30,000/yr, using most of the annual savings from the Conservation Easement. The CE acquisition and tax savings is repeated annually. As long as the couple’s income stays above $400,000, the new life insurance policy should be fundable from the Conservation Easement savings, with no additional money from the clients.

Through the Indexed Universal Life policies, the clients may be able to create $161,541 per year tax-free retirement income for 25 years (65 to 90). The total cost of the policies is $830,000. If the clients survive for just over 5 years into retirement, they will have gotten their money back. If the clients live long enough to use all of the tax-free income available in the policy, they should be able to withdraw over $4,038,500, or nearly 5 times their cost.

As with any tax strategy, clients should consult with their tax professional. Neither IREXA, LLC nor Great Point Capital are attorneys or tax professionals. All work regarding Strategic Tax Mitigation™ relies on the client’s tax professional. This example was in accordance of the applicable laws at the time of the transaction.

Tax Deductions via Conservation Easements

Charitable contributions of conservation easements provide tax deductions to the contributors. They are a proven, effective way to provide for the public good by transferring properties into the public realm perpetually.

On December 30th Richard Rubin published an article in the Wall Street Journal about conservation easements primarily from the perspective of conservation easement abuse. He recognized that viable conservation easements do exist. However,  the purpose of his article was to outline abuse, as well he should.

The two primary areas of concern regarding conservation easement abuse include:

  • viability of the easement and
  • abusive land value appraisals.

Viability: Two important criteria for viability are: conveyance in perpetuity of a valid and valuable right, and a public benefit is gained from the conveyance.

Abusive appraisals: The IRS has well-defined rules for appraising conservation easements. The IRS will automatically red flag any conservation easement when the tax deduction is greater than 2.5 to 1. It is an attempt to curb overly aggressive appraisals which can be characterized as conservation easement abuse. Some sponsors are offering deductions as high as 5 to 1. It’s no wonder the IRS is actively seeking to curb such abuse.

As background, Congress uses the tax code to achieve its goals by encouraging investment in various sectors of the economy. Some examples are solar and wind credits, and conservation easements. Often, Congress rewards those who risk their capital with tax deductions and credits.

As part of my Strategic Tax Mitigation™ approach to financial planning, I use conservation easements where appropriate. The conservation easements with which I am familiar, from reputable sponsors, have deductions below the IRS investigation threshold. I also use a number of other sections of the tax code to provide tax benefits to my clients that ensures that they will only pay the minimum tax they are legally obligated to pay.

For a free tax-saving strategic plan, contact me at

Learn more about Conservation Easements.  Review our 1031 exchange properties.



IREXA® Financial Services / Wealth Strategies collaborates with CPAs, attorneys, and other tax planning professionals to assist clients with tax mitigation strategies. IREXA® and Great Point Capital, LLC are not tax professionals or attorneys. IREXA® only provides client tax mitigation strategies through, and with the approval of, the client’s professional counsel.

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