There are few triple plays in the tax code. Health savings accounts, for example, offer upfront deductions, tax-free investment earnings and tax-free withdrawals for medical care.

A lesser-known member of this exclusive club is the conservation easement, the gift of development rights on a piece of property to a government body or land trust in order to keep the land partially or fully wild. A landowner donating an easement may get breaks on income, estate and property taxes.

Even better, the recently passed farm bill allows easement donors to deduct gifts of up to 50% of their adjusted gross income (AGI), so long as the easement doesn't prevent farming or ranching on the property. (Farmers can deduct up to 100% of their AGI.) Gifts in excess of that amount can be carried forward up to 15 years. Easements donated in 2008 and 2009 will qualify for these historically high percentage-of-AGI limits and longer carryforwards for tax deductions. In 2010, the tax benefits may revert to lower ceilings: up to 30% of AGI and a five-year carryforward. (These provisions were originally part of the Pension Protection Act of 2006, which expired after 2007 and were revived in the farm bill.)

In many cases, though, clients seeking conservation easements are not driven by tax concerns. "One of my clients recently donated an easement worth $600,000 to a local land trust," says Tom Rogers, a principal at Portland Financial Planning Group in Maine. "She was oblivious that she'd be eligible for a significant tax deduction until I told her about it."

Regardless of a client's motives, the benefits are there and can be substantial. Donors incur costs, though, and they may give up a great deal of property value. For financial planners interested in exploring the tradeoffs, walking through the donation made by Rogers' client may be instructive.

Income Tax Treatment

Rogers' client owns acreage that abuts a beautiful lake in Maine. "The property, which has been in the family for nearly a century, contains a vacation home," Rogers says. "My client wanted to keep the property in the family and also wanted to prevent development on the land."

To accomplish her goals, the client donated an easement to a local land trust that "permits the vacation home to remain there, but prohibits future development," he says. "Before going ahead with the easement, my client checked with her children, who were on board with the idea." Discussing an easement donation with heirs can be vital because the property's resale value will likely be reduced by the restriction, which is in perpetuity.

An appraiser hired by the landowner provided valuations, before and after the donation. The appraisal showed that without the development rights, the property lost $600,000 of its value. Thus, the donor got a $600,000 income tax deduction for making a charitable contribution to the land trust.

Due to the sharp loss of appraised value, easement donations commonly result in six- and even seven-figure charitable deductions. A deduction this valuable used to be hard to realize, and could be so again if the new rules are not extended. For example, under the old rules, which are set to return after 2009, a donor entitled to a $600,000 write-off would need an AGI of $333,333 to take a $100,000 charitable deduction each year for six years, says David Scott Sloan, partner in the Boston office of the law firm Holland & Knight. Under the tax rules for 2008 and 2009, that client could have an AGI as low as $80,000 and still be able to deduct the full amount: $40,000 over 15 years.

But it may make sense not to stretch the charitable deduction from an easement donation far into the future. "My client with the $600,000 deduction is a retired professor with over $1 million in tax-deferred accounts," Rogers says. "I suggested she convert some of that money to a Roth IRA, which would increase her AGI, and use the easement deduction to offset 50% of that income." After five years and after age 591/2, all Roth IRA withdrawals will be tax-free.

Estate Tax Treatment

Cutting a property's appraised value by $600,000 will reduce the size of the owner's estate and may eventually save estate tax. There is also a federal estate-tax exclusion for easement donors "worth up to 40% of the value of the land, but not structures, subject to a donated conservation easement," Sloan says.

Suppose, for example, that Joan Jones grants a conservation easement that reduces the value of her property from $1.6 million to $1 million. The vacation home on the property is valued at $300,000. The land subject to the easement, then, would be worth $700,000: $1 million minus $300,000. The 40% exclusion would reduce her taxable estate by $280,000: 40% of $700,000. "The maximum exclusion is $500,000," Sloan adds, "and various restrictions on this exclusion may apply."