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Qualified conservation contributions (MS Word)

Qualified conservation contributions (.pdf)

 

Qualified conservation contributions

Dear Reader:

If you are conservation-minded and own real property, you may be able to claim a charitable deduction by placing conservation restrictions on the property, while you continue to use the property and enjoy it. This can be done through a “qualified conservation contribution.” Here's how it works:

To qualify, you must grant an easement on the property in perpetuity to a charitable organization or governmental unit that is committed to protecting the gift's conservation purpose and has the resources to enforce the restrictions. Conservation groups generally qualify.

The gift must be exclusively for one of the following conservation purposes:

  • Preserving land areas for outdoor recreation by, or the education of, the general public. This includes preserving a water area for boating or fishing, or preserving a nature or hiking trail. The public recreation or education use must be substantial and regular.
  • Protecting a significant natural habitat of fish, wildlife, plants, or a similar ecosystem. Public access may be restricted, e.g., to protect the habitat.
  • Preserving open space (including farmland and forest land) for the general public's scenic enjoyment or under a governmental policy. The public must receive a significant benefit.
  • Preserving an historically important land area or a certified historic structure. In this case, an easement on a private residence may qualify.

A significant advantage of making a qualified conservation contribution is that you can continue to use the property, as long as the conservation easement restrictions aren't violated. Thus, for example, you can donate an easement on scenic farmland next to a national park and continue to farm the property. Or, if your home is an historic structure, you can donate a conservation easement on the home and continue to live there. You may have to grant some degree of access to the public, depending on the circumstances, but this can be limited in a manner that permits your continued enjoyment of the property.

The amount of the charitable deduction is equal to the value of the donated easement. This may be determined by comparing it to similar easements that have been valued. Or, it may be determined by comparing the value of the property without the conservation restrictions to its value subject to the restrictions. The difference will generally be the value of the charitable gift.

You must adjust your tax basis in the property by subtracting the portion allocable to the gift. For example, if you make a qualified conservation contribution valued at $100,000 with respect to property worth $1 million, your basis in the property will be reduced by 10%, reflecting the fact that you have donated 10% of the property to charity.

In addition to the income tax benefits discussed above, qualified conservation contributions can also have estate tax benefits. Your estate can qualify for a qualified conservation easement exclusion of up 40% of the value of land subject to a qualified conservation easement. The exclusion cannot exceed $500,000.

If you own property that could be the subject of a qualified conservation contribution and wish to pursue this matter further, please give me a call.