The IRS requires that you obtain a qualified appraisal of the easement that you donate. A qualified appraisal is a document signed and dated by a qualified appraiser at the time you make the donation, which sufficiently describes the property.
A qualified appraisal will include a description of the property in sufficient detail, address the physical condition of the property, and any terms of any agreement that relates to the use, sale, or disposition of the property contributed. The appraisal must state the fair market value of the property, method of valuation used to determine the fair market value (such as the income approach, market-data approach, replacement-cost-less-depreciation approach), and the specific basis for the valuation (such as a specific comparable sales transaction or statistical sampling).
The IRS requires that you have a qualified appraiser determine the value of your easement. This is someone who either holds themselves out to the public as an appraiser or performs appraisals on a regular basis. They must be qualified to make appraisals of the type of property being valued, therefore it helps if the person is from the area and familiar with the property. The appraiser must understand that the consequences for fraudulently overstating the value of the property and that they can be penalized for engaging in fraud.
Even if a person meets all the forgoing criteria, they will not be a qualified appraiser if they are involved in the transaction, such as if they are the donor, donee, or an employee or relative of either. The fee collected by the appraiser may not be in based on the value that the appraiser gives the property.
Fair Market Value
Treasury Regulation 1.170-14 elaborates on how to determine fair market value for different interest that are donated:
An entire interest of donor other than qualified mineral interest. The value of the contribution in the case of a contribution of a taxpayer's entire interest in property other than a qualified mineral interest is the fair market value of the surface rights in the property contributed. The value of the contribution shall be computed without regard to the mineral rights.
Remainder interest in real property. In the case of a contribution of any remainder interest in real property, depreciation and depletion of such property shall be taken into account. In the case of the contribution of a remainder interest for conservation purposes, the current fair market value of the property must take into account any pre-existing or contemporaneously recorded rights limiting, for conservation purposes, the use to which the subject property may be put.
Perpetual conservation restriction. The value of the contribution for a charitable contribution of a perpetual conservation restriction is the fair market value of the perpetual conservation restriction at the time of the contribution.
If there is a substantial record of sales of easements comparable to the donated easement (such as purchases pursuant to a governmental program), the fair market value of the donated easement is based on the sales prices of such comparable easements. If no substantial record of market-place sales is available to use as a meaningful or valid comparison, as a general rule (but not necessarily in all cases) the fair market value of a perpetual conservation restriction is equal to the difference between the fair market value of the property it encumbers before the granting of the restriction and the fair market value of the encumbered property after the granting of the restriction.
The amount of the deduction in the case of a charitable contribution of a perpetual conservation restriction covering a portion of the contiguous property owned by a donor and the donor's family is the difference between the fair market value of the entire contiguous parcel of property before and after the granting of the restriction. If the granting of a perpetual conservation restriction increases the value of any other property owned by the donor or a related person, the amount of the deduction for the conservation contribution shall be reduced by the amount of the increase in the value of the other property, whether or not such property is contiguous. If, as a result of the donation of a perpetual conservation restriction, the donor or a related person receives, or can reasonably expect to receive, financial or economic benefits that are greater than those that will inure to the general public from the transfer, no deduction is allowable under this section. However, if the donor or a related person receives, or can reasonably expect to receive, a financial or economic benefit that is substantial, but it is clearly shown that the benefit is less than the amount of the transfer, then a deduction under this section is allowable for the excess of the amount transferred over the amount of the financial or economic benefit received or reasonably expected to be received by the donor or the related person.
Fair market value of property before and after restriction. If before and after valuation is used, the fair market value of the property before contribution of the conservation restriction must take into account not only the current use of the property but also an objective assessment of how immediate or remote the likelihood is that the property, absent the restriction, would in fact be developed, as well as any effect from zoning, conservation, or historic preservation laws that already restrict the property's potential highest and best use. Further, there may be instances where the grant of a conservation restriction may have no material effect on the value of the property or may in fact serve to enhance, rather than reduce, the value of property. In such instances no deduction would be allowable. In the case of a conservation restriction that allows for any development, however limited, on the property to be protected, the fair market value of the property after contribution of the restriction must take into account the effect of the development.
In the case of a conservation easement, such as an easement on a certified historic structure, the fair market value of the property after contribution of the restriction must take into account the amount of access permitted by the terms of the easement. Additionally, if before and after valuation is used, an appraisal of the property after contribution of the restriction must take into account the effect of restrictions that will result in a reduction of the potential fair market value represented by highest and best use but will, nevertheless, permit uses of the property that will increase its fair market value above that represented by the property's current use. The value of a perpetual conservation restriction shall not be reduced by reason of the existence of restrictions on transfer designed solely to ensure that the conservation restriction will be dedicated to conservation purposes.
Allocation of basis. In the case of the donation of a qualified real property interest for conservation purposes, the basis of the property retained by the donor must be adjusted by the elimination of that part of the total basis of the property that is properly allocable to the qualified real property interest granted. The amount of the basis that is allocable to the qualified real property interest shall bear the same ratio to the total basis of the property as the fair market value of the qualified real property interest bears to the fair market value of the property before the granting of the qualified real property interest. When a taxpayer donates to a qualifying conservation organization an easement on a structure with respect to which deductions are taken for depreciation, the reduction must be allocated between the structure and the underlying land.
Substantiation requirement. If a taxpayer makes a qualified conservation contribution and claims a deduction, the taxpayer must maintain written records of the fair market value of the underlying property before and after the donation and the conservation purpose furthered by the donation and such information shall be stated in the taxpayer's income tax return if required by the return or its instructions.