Income taxes

If you donate land to a qualified government conservation agency or nonprofit organization, you may be able to claim a charitable gift deduction for the fair market value of your gift. The deductions allowed for federal income tax purposes are also generally available for Iowa income tax purposes.

Depending on the land protection method you choose, there may be additional rules on what constitutes a “true gift,” adequate conservation protections or an IRS-qualified recipient. To further complicate the situation, the federal government offers choices for how to compute your charitable gift deduction (see the Income Tax Options section below).

Tax options also change over time, and their relative advantages vary according to individual finances and goals. Talk with your tax advisor about which options are available and right for you.

Income tax options

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% or 50% election options.

The 30% 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% of your adjusted gross income (AGI) for that year. If your gift’s value exceeds 30% of your AGI, you can carry the excess over for up to five succeeding tax years. In other words, you can deduct 30% of your AGI annually until you’ve deducted the gift’s total value or until six years have passed—whichever comes first.
The 50% option: You can choose a charitable deduction of 50% rather than 30% 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% option, this 50% deduction can be carried forward for five additional years. The 50% 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% option. Some purposely delay the easement gift until the second year to qualify for the 30% option.]
10% for corporate donors: Corporate donors are also entitled to deduct the current appraised value of a land gift (up to 10% of the corporation’s taxable income per year), subject to the five-year carry forward rule.
A new option: Your allowable deduction may be affected by our ever-changing tax laws. For example, The Pension Protection Act of 2006 dramatically increased the potential income tax deduction for private conservation easement donations—but not for donations of land or other assets. The new law extended the deduction period to 16 years and the rates to as much as 100% for easement donors who derive most of their income from farming or ranching. This new provision is slated to expire at the end of 2007, though it could be extended.

Will these and other conservation tax benefits be expanded? Reduced? As this book goes to press, it’s impossible to predict. That’s why consulting a tax professional for the latest rules and how they apply to your specific situation is so important.

More information on tax issues:
Income taxes | Capital gains taxes | Estate & inheritance taxes | Property taxes | Cautions