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Federal Income Tax Deduction Limitations for Individuals |
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The tax code allows individuals a tax deduction for contributions to charitable organizations
that are tax-exempt under section 501(c)(3) In general, the donor is entitled to deduct the
fair market value of property donated to a 501(c)(3) organization. However, the amount the
donor can deduct is limited to a set percentage of the donor’s “adjusted gross income” (AGI)
– essentially the donor’s taxable income before claiming itemized deductions like mortgage
interest or charitable contributions. If the donor gives property rather than cash, the
applicable limitation is generally 30% of his AGI for that year. If the value of the charitable
contribution is greater than 30% of AGI, then the donor can “carry the deduction forward” and
claim the excess amount as a deduction against future income for five years. The low percentage limits and short carry-forward period has frustrated conservation-minded landowners. Frequently, the conservation interest a private landowner wants to give is worth many times what he could ever deduct under the 30% AGI limit even over five years. To help remedy this problem Congress enacted more generous limits for conservation easements. For easements donated by December 31, 2007, landowners can deduct the value of the easement up to 50% of their AGI, instead of only 30% of AGI. Moreover, the new rules are even more favorable for farmers and ranchers who often own very valuable land but have relatively little income. Qualified farmers and ranchers who donate a conservation easement before the end of 2007 can deduct up to 100% of their taxable income. Law makers also increased the length of time landowners have to use excess deductions that exceed even these more generous percentage limitations. For easements made in 2007, easement donations that exceed the allowable annual limits can be applied against future taxable income for the next fifteen years, rather than the five years allowed under the rules that apply to other kinds of charitable contributions. |
Financial Alternatives for Land Conservation Transactions