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Land Trust Alliance Summary of IRS Notice 2007-50

Below is a shortened version of the IRS Notice.  Attorneys will want to read the full Notice, and may differ with our interpretation!

 

Q.  Do the 50 percent and 100 percent limitations in this provision apply to all contributions of real property interests?

A.  No.  A contribution of the taxpayer’s entire interest in real property does not qualify.  And, for purposes of determining whether an entire interest in real property has been contributed, the retention of an insubstantial right or interest in the property will be disregarded. 


Q.  How may an individual determine whether they are “qualified farmer or rancher” (and thus are eligible for the 100 percent limitation)?

A.  They are a qualified farmer or rancher if their gross income from the trade or business of farming is greater than 50 percent of the individual’s total gross income for the year of the contribution.  Total gross income includes all income from whatever source.  Gross income from the trade or business of farming is the gross income from the specific activities described in § 2032A(e)(5): cultivating the soil; raising or harvesting any agricultural or horticultural commodity; raising, shearing, feeding, caring for, training, and management of animals; handling, drying, packing, grading, or storing on a farm any agricultural or horticultural commodity in its unmanufactured state but only if the owner, operator, or tenant of the farm regularly produces more than one-half of the commodity; and the planting, cultivating, caring for, or cutting of trees, or the preparation (other than milling) of trees for market.   Neither of these figures is calculated as part of a normal tax return.  You will have to start from scratch.


Q.  If a qualified conservation contribution is made by a pass-through entity such as a partnership or S corporation, is it the entity, or each individual partner or shareholder, which must be a “qualified farmer or rancher” to get the 100 per cent deduction?

A. The individual partner or shareholder must qualify – the pass-through entity’s income doesn’t matter.


Q.  Is income from a sale (including a bargain sale) of a conservation easement included in the individual’s gross income from the trade or business of farming?

A.  No. 

 

Q.  Is income from the sale of timber included in the individual’s gross income from the trade or business of farming?

A.  Yes.

 

Q.  Are fees to permit hunting and fishing on the property included in gross income from the trade or business of farming?

A.  No.

 

Q.  Must the conservation contribution be of property used in agriculture or livestock production in order for a “qualified farmer or rancher” to get the 100 percent limitation?

A.  No.  If a qualified farmer owns land not used for agriculture, and wants to donate a conservation easement on it, that easement still gets the 100% of AGI limit.

 

Q.  Does property used or available for use in agriculture or livestock production include houses used for family living by the farmer or rancher or their employees, other types of buildings used for agriculture or livestock purposes, and roads throughout the property?

A.  Yes.  The portions of the property upon which such improvements are located can be treated as property used or available for use in agriculture or livestock production.  To qualify for the 100 percent limitation, the qualified conservation contribution must include a restriction that the entire property, including the portions upon which the improvements are located, remain available for agriculture or livestock production.

 

Q.  How does a qualified farmer or rancher comply with the requirement that the property remain available for such production?

A.  The conservation easement must include a restriction that the property remain available for agriculture or livestock production, and must ensure that the property is protected from any use that would interfere with agriculture or livestock production.  For example, a qualified conservation contribution of property used or available for use in agriculture or livestock production might include in the document prohibitions against construction or placement of buildings (except those used for agriculture or livestock production purposes, or dwellings used for family living by the qualified farmer or rancher, a lessee that operates the property, or their employees); removal of mineral substances in any manner that adversely affects the property’s agriculture or livestock production potential; and other uses detrimental to retention of the property for use in agriculture or livestock production.

 

Q.  A qualified farmer or rancher makes two qualified conservation contributions with respect to their 1,000 acre property. 950 acres are used (or available for use) in agriculture or livestock production, and 50 acres are used as a preserve that is unavailable for use in agriculture or livestock production.  The farmer contributes a qualified conservation contribution with respect to the 950 acre property, and a separate qualified conservation contribution with respect to the 50 acre property.  The contribution with respect to the 950 acre property includes a restriction that the property remain available for use in agriculture or livestock production.  The 50 acre contribution does not.  Do both contributions qualify for the 100 percent limitation?

A.  Yes. 

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July 17: The House just voted 277-130 to pass the charities package! 56 Democrats joined their Republican colleagues to support charitable giving incentives, including the enhanced easement incentive - the second-highest number of defections after the research and development tax credit. Several others spoke on the floor in support of the conservation easement incentive, and other favorable charitable incentives. Thank you to organizations like Ducks Unlimited, CSF and others that reached out to Congressional offices over the last few days or alerted their membership of this important vote. Now, we pivot to the Senate.
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