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Post Date:  8/14/2017
Last Updated:  8/14/2017

Summary
Cross References
- Rutkoske, 149 T.C. No. 6, August 7, 2017

A charitable contribution deduction for individuals is generally limited to 50% of the taxpayer’s AGI. Contributions in excess of 50% of AGI are carried over to the next tax year and added to contributions for that year, which in turn are subject to the 50% AGI limitation. If excess contributions are not used up in the carryover year due to the 50% AGI limitation for that year, they are carried forward to the next tax year, and so on. Excess contributions can be carried forward for up to five years.

A special rule applies if the property donated is capital gain property (property that would have produced capital gains if sold rather than donated). Capital gain property donated to a 50% AGI limit organization is subject to a 30% of AGI deduction limitation, unless the taxpayer elects to reduce the value of the property by the amount that would have been long-term capital gains if the property were sold. If the charity is not a 50% AGI limit organization, the 30% AGI limit is reduced to 20% of AGI. Examples of organizations that are not 50% AGI limit organizations are veterans’ organizations, fraternal societies, nonprofit cemeteries, and certain private non-operating foundations.

Another special rule applies if the capital gain property donated is a qualified conservation contribution (QCC). A QCC is a contribution of a qualified real property interest to a qualified organization exclusively for conservation purposes. For QCCs, the 30% of AGI deduction limitation is increased back to the 50% AGI limit, and any unused deductions may be carried forward for 15 years rather than the standard five year limit.

Another special rule applies if the QCC property is donated by a qualified farmer or rancher. In this case, the 50% of AGI deduction limitation is increased to 100% of AGI. A recent court case considered the requirements to be a qualified farmer for purposes of being eligible to use the 100% AGI limitation.

The taxpayers in this case were members of a limited liability company (LLC) that owned 355 acres of land. The LLC leased this land to others who used it as farmland. In 2009, the LLC conveyed a conservation easement restricting the development rights on the property to a public charity in exchange for $1,504,960. The bargain element of the transaction (the value of the property that exceeded $1,504,960) was alleged by the taxpayers to be $1,335,040. The taxpayers reported this bargain element as a noncash charitable contribution deduction on their tax returns. Following the conveyance of the development rights, the LLC sold its interest in the property to an unrelated party for $1,995,040. The LLC was treated as a partnership for federal income tax purposes, so the individual members (partners) of the LLC were treated as contributing the conservation easement and selling the property.

The taxpayers claimed they were qualified farmers. As such, they claimed they were eligible to use the 100% AGI limitation for the contribution rather than the 50% AGI limit. A qualified farmer is defined as a taxpayer whose gross income derived from the trade or business of farming is greater than 50% of his or her total gross income for the year. [IRC §170(b)(1)(E)(v)]

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