Charitable Deductions for Qualified Conservation Contributions
A qualified conservation contribution can provide significant federal income tax savings to an owner of real property, provided that the property is of a suitable character.However, the owner’s circumstances and objectives must be fully considered, and care must be taken to ensure that all requirements that must be satisfied for such a contribution to form the basis of a federal income tax deduction are met. If you contemplate making such a contribution, you should seek help from financial and legal advisors.
As a general rule, no federal income tax deduction is allowed for a charitable contribution of an interest in property that consists of less than the donor’s entire interest in the property.However, the contribution of a partial interest in real property that is a “qualified conservation contribution” will qualify for deduction.
A qualified conservation contribution is a donation, made to a qualified organization, of a “qualified real property interest” that is made exclusively for a “conservation purpose.” The term “qualified real property interest” means any of the following interests in real property:
- The entire interest of the donor (but excluding a qualified mineral interest)
- A remainder interest
- A restriction, granted in perpetuity, on the use which may be made of the real property
The donation of the qualified real property interest must be made exclusively for a qualified conservation purpose. The term “conservation purpose” means the preservation of land areas for outdoor recreation by, or the education of, the general public; the protection of a relatively natural habitat of fish, wildlife, plants, or similar ecosystem; the preservation of open space (including farmland and forestland) where such preservation is for the scenic enjoyment of the general public or is pursuant to a clearly delineated federal, state, or local governmental conservation policy and will yield a significant public benefit; or the preservation of an historically important land area or a certified historic structure, where the term “certified historic structure” means:
- (a) A building, structure, or land area that is listed in the National Register of Historic Places
- (b) A building that is located in a registered historic district and is certified by the Secretary of the Interior to the Secretary of the Treasury as being of historic significance to that district
In the case of a donor other than a Subchapter C corporation, the deduction is generally limited to 30% or 50% of the donor’s “contribution base” for the taxable year in which the donation is made. Which limitation applies will generally depend on the type of charitable organization to which the qualified conservation contribution is made and the type of qualified real property interest. The “contribution base” is the donor’s adjusted gross income computed without regard to any net operating loss carryback. If the value of the qualified real property interest exceeds the deduction limitations, the excess deduction may be carried forward for up to five succeeding taxable years.
In the case of a donor that is a Subchapter C corporation, the maximum amount allowable as a charitable contribution deduction for any taxable year is 10 percent of the corporation’s taxable income for that year, computed with certain adjustments, and a 5-year carryover period is provided for the portion of the corporation’s charitable contributions that exceeds the 10 percent limitation. The type of charitable recipient does not affect the percentage limitation on the amount of the allowable charitable deduction.
Due care should be taken when planning, documenting, and substantiating a contribution that is made with the expectation of securing for the donor a qualified conservation contribution deduction. Qualified conservation contribution deductions are subject to a high degree of scrutiny by the Internal Revenue Service. The IRS can be expected to strictly construe all requirements and to challenge any such deduction in any case for which it determines that there is any requirement that has not been satisfied.
Should you have any questions related to the information included in this article, contact your Marcum Tax Advisor.