Income tax benefits for permanent land protection
When you protect your land, you may be able to claim:
Plus, one of these federal deductions:
Exploring these benefits is worth the time and discussion involved. It is always important to consult a tax professional to understand the latest rules and how they apply to your specific situation. Tax options change over time, and their relative advantages vary according to individual finances and goals.
Computing your federal deduction
For most gifts of land, easements or other assets, the federal tax code offers you choices in how to compute your charitable gift deduction. The current standards are the 30 percent or 50 percent election options.
The 30 percent option
If the charitable deduction for your land gift is based on its current fair market value (including any price appreciation since you originally purchased it), the amount you can deduct in charitable contributions in one year is limited to 30 percent of your adjusted gross income (AGI) for that year. If your gift’s value exceeds 30 percent of your AGI, you can carry the excess over for up to five succeeding tax years. In other words, you can deduct 30 percent of your AGI annually until you’ve deducted the gift’s total value or until six years have passed – whichever comes first.
The 50 percent option
You can choose a charitable deduction of 50 percent rather than 30 percent of your AGI if you compute your gift’s value according to your basis in the property rather than its fair market value. Like the 30 percent option, this 50 percent deduction can be carried forward for five additional years. The 50 percent rule might be advantageous when your basis in the property is substantial compared to your income, the appreciation in your property value has been small, or you have reasons to maximize your deduction earlier rather than later.
Note: Landowners who donate a conservation easement within one year of purchasing the land are currently limited to accepting the 50 percent option. Some purposely delay the easement gift until the second year to qualify for the 30 percent option.
10 percent for corporate donors
Corporate donors are also entitled to deduct the current appraised value of a land gift (up to 10 percent of the corporation’s taxable income per year), subject to the five-year carry-forward rule.
More information at IRS Publication 526.
What’s a carry-forward or carryover?
In general, your charitable deductions each year are limited to a certain percentage of your income in that same year. If your deductions are quite large compared to your income, you may have “extra” deduction you can’t claim in the year of your gift. What do you do then? Consider the carry-forward rules that allow you to claim the “unused” tax deduction next year — and keep doing that until your full deduction is used or until a certain number of years have passed, depending on which comes first. See IRS Publication 526.