Cir

We are asked to decide whether Treasury Regulation § 1.170A-14(g)(2) requires that, for a taxpayer to take a deduction for the donation of a conservation easement, any mortgage , on the property must be subordinated to the easement at the time of the donation. We hold that this is required by the regulation and thus affirm the decision of the Tax Court to that effect.

I. Background

Walter C. Minnick and A.K. Lienhart (“Taxpayers”) are a married couple. In 2005, Minnick took out a $400,000 loan from U.S. Bank. The loan was secured by an undeveloped plot of land Minnick already owned in Ada County, Idaho. Min-nick intended to use the funds to develop that land. After Minnick received preliminary approval to develop parts of the land, the loan amount was increased to $1.4M in March 2006, and then to $1.5M in August 2006.

In September 2006, Minnick received final approval of the development plans. Two days later, Minnick donated to the Land Trust of Treasure Valley a conservation easement on parts of the plot that would not be developed. Despite warranties in the easement agreement to the contrary, the land was still subject to the mortgage. The mortgage had not been…