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Qualified Conservation Deduction Guidelines Published by IRS
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In Notice 2007-50; 2007-25 IRB 1, the IRS released guidance on the implementation of the "qualified conservation contribution" changes created in the Pension Protection Act of 2006 (PPA 2006). The guidelines outline the general rules for deductions and include multiple question and answer cases to explain the application of conservation deduction rules. Generally, individuals are permitted to deduct a percentage of the "contribution base" which is the adjusted gross income, computed without net operating loss carryback. In nearly all cases, the contribution base is adjusted gross income (AGI) and that term will be used here. The main charitable deduction limit under Sec. 170(b)(1)(A) is that cash gifts to public charities are deductible to 50% of AGI. For gifts of long-term capital gain property, the Sec. 170(b)(1) limit is 30% of AGI. However, PPA 2006 created two new categories. For qualified conservation easements, even though the property may be appreciated, the charitable deduction limit is now 50%. Sec. 170(b)(1)(E)(ii). If there is a conservation deduction carryforward, that is not limited to the normal five years, but is now 15 years. In addition, Sec. 170(b)(1)(E)(iv) creates a special rule for a qualified farmer or rancher. For a person with more than 50% of gross income from farming or ranching as defined in Sec. 2032A(e)(5), the deduction limit is 100% of AGI. But in order to benefit from the 100% limit, a new conservation easement on agricultural or livestock property must include a restriction that a property remains "available for agricultural or livestock production." Contribution Deduction Order. The conservation deductions are considered after other charitable deductions. For a donor with AGI of $100 who makes a gift of $60 of cash and creates a conservation easement valued at $80, the charitable deduction is limited to $50 for the year. There is a $10 cash carryforward that may be used for up to five years, and an $80 conservation gift carryforward. The conservation carryforward is a 50%-type gift with a carryforward for up to 15 years. If the donor is a farmer or rancher with over 50% of income from farming or ranching, then in the same situation the donor first deducts the cash contribution to 50% of AGI and then may deduct the conservation contribution up to 100% of AGI, producing a total deduction of $100. The farmer carries forward a $10 cash deduction for up to 5 years and the remaining $30 of the conservation contribution may be carried forward up to 15 years. Contributions by Partnerships or Sub Chapter S Corporations. The determination as to whether a partner or shareholder is a qualified farmer or rancher is made at the individual level, not at the partnership level. Bargain sale Conservation Easement. Income from the sale portion of the land in a bargain sale is not used to determine whether the farmer or rancher qualifies under the 50 percent farm income requirement. Sale of Timber. Timber planting and cultivation is a permissible farming activity under Sec. 2032A(e)(5). It may be used to determine whether a tree farmer has reached the required 50% income level. Hunting and Fishing Fees. Income from hunting and fishing fees is not farm income. Restricted to Agriculture or Ranching. The typical agricultural or ranching restrictions could include a prohibition against construction of buildings other than normal farmstead and farm buildings, a restriction against removing minerals in a way that would adversely affect agricultural or livestock production and prohibitions on land use detrimental to agricultural or livestock production. Notice 2007-50; 2007-25 IRB 1 (4 Jan 2007) Guidance regarding deductions by individuals for qualified conservation contributions. | |
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