The outlook for steep and broad tax cuts in the US is much worse than it was even six months ago. Before the war is out, the world may even see US tax hikes. So how are holders of US property consoling themselves?

By playing the tax game themselves. Or, to answer specifically, by using a little vehicle called the conservation easement.

The conservation easement is one of those American tricks that reduces the tax bite for the propertied citizen. Originally passed in the 1970s, and improved more recently, the law allows home and landowners, and even farmers, to have their property, and eat it too. As attorney Beth Shapiro Kaufman noted in last summer in the scholarly journal Tax Notes, "conservation easements give more advantageous tax benefits than any other kind of charitable gift".

The game works like this: you seek out your stateside country home, off the main road, beside a jet-ski-free pond. Your land is surrounded, where possible, by acres and acres of buffering land, so that you will never have to see - or hear - your neighbour's 15-year-old practicing his hoop shot. You have no plans to build on this land. Indeed, being something of a green, you balk at the notion of disturbing your patch of treed heaven. You want to preserve the land for your grandchildren, so that they, too, may feed the ducks.

To your own mind, and in the mind of the US second-home market, your property's isolation is an advantage - or, at least, not a great disadvantage. And that advantage can only increase with time, as exurbia sprawls its way yet further into the fruited plains.

But that's not the way the US taxman sees it. Under tax law, as in the board game Monopoly, a property that is unbuilt is a property that is less valuable. And a property owner who forswears the right to build is a property owner who is forswearing revenue. So the law grants an owner who promises not to build a tax break on his lost value.

To lock in such breaks, owners must deed development rights of their property to an official charity, usually a land trust charity that specialises in such gifts. The donation of these rights then reduces the paper value of the property, often substantially.

How substantially becomes clear in "Preserving Family Lands" (Landowner Planning Center, Boston Mass., or www.stevesmall.com). Attorney author Stephen Small offers the following example: John and Mary own Riverview, a $2.5 million country estate (of the sort that run along the Hudson, or in Napa Valley). They deed over development rights to the local conservation entity, reducing the paper value of their hundred acres to $1m. The entire difference of $1.5m may then be claimed as a tax deduction. Also, and crucially, the lower paper value of their property reduces the exposure of their legacy to estate taxes.

Urban owners, or at least the architecturally inclined variety, may also profit from a similar advantage. Supposing, in this case, you own a row house off Dupont Circle with market value of $1.5m (it's a tiny house). Local landmark restrictions mean you are not allowed to paint the façade of your house any colour you choose; indeed, you are not allowed to paint it at all without umpteen permits from entities such as the Historic Preservation Review Board.

This little bother can be converted to your advantage by deeding away the right to make changes to your home's exterior, in perpetuity.

What is appealing about this step, notes the National Architectural Trust, a Washington-based nonprofit that has accepted more than 200 such façade easement donations, is that in reality you are giving away little. Landmark law says you can't fool with the window mullions or the house colour anyway. Yet you can claim, according to this group, something like an 11 per cent loss on the value of your home. For a $1.5m house, that means a $165,000 deduction. This translates into a saving of up to $80,000 in a high tax venue (New York, the District of Columbia). Plus, you can hold your head high - you are a preservationist! - at all those cocktail parties in Georgetown or Holland Park. The value of that? "Priceless", as the ads on television for a certain credit card company say.

Some caveats: easements can be expensive. By the time you're down with title searches, required appraisals, legal fees and endowment requests, you may have whittled away your savings.

What's more, while the IRS hasn't been unfriendly to easement cases in the past, that could always change - especially now that the federal surplus is disappearing and lawmakers will soon be leaning on the tax collectors for more revenue.

In other words, easements are a sweet consolation prize - but only that. How much more sensible it would be if Congress simply lowered and flattened rates, and people could devote their time to earning (taxable) income, rather than plotting against the tax man. But for now, easements may ease the pain.

© Copyright 2001 Financial Times