Claiming an Income Tax Deduction for Your Full or Partial Gift of Land

Landowners usually donate their land to the Forest Society with an interest in ensuring the permanent conservation and good stewardship of their land. Some of these donations involve the full gift of land, where no money changes hands. Others may involve a partial gift, whereby you sell the land at a price below its appraised value, thus receiving cash for part of the land’s value (“bargain sale”) and making a charitable contribution of the balance of value. When a transaction does have a gift component, you may sometimes be referred to as the “Donor” and the receiving organization, such as the Forest Society, the “Donee.” Full and partial gifts of land are critical to the Forest Society’s fulfillment of its mission; they not only make conservation projects financially feasible, but also inspire others to be similarly generous. As the land Donor, you can enjoy the pleasure of “doing the right thing” and also receiving potential tax benefits.

This document will highlight some of the key issues when you’re considering an income tax charitable deduction for your gift of land. As noted below, this is not intended to provide tax or legal advice, and you’re urged to retain your own professional advisors.

Procedures & Best Practices

The Forest Society must follow certain procedures and best practices in how it acquires land to ensure a sound transaction, to uphold the trust that others place in the organization, and to maintain the organization’s tax-exempt status. Governing the process are the policies and procedures adopted by the Forest Society’s Board of Trustees, state laws and regulations overseen by the Charitable Trusts Unit of the NH Attorney General’s Office, federal law and regulations of the Internal Revenue Service (“IRS”), and best practices developed by the Land Trust Alliance in its nationally recognized “Land Trust Standards and Practices” and accreditation programs.

If you wish to claim a charitable contribution tax deduction for your gift, your donation must meet certain legal and technical requirements of federal tax law. Since both the Forest Society and you must adhere to IRS related requirements, it’s in both parties’ interests to be clear and consistent in how each handles the transaction. Further, the Forest Society has a strong interest in your adherence to these standards so as not to get caught up in a problem that might jeopardize the organization’s tax-exempt status, reputation, and/or status as an accredited land trust.

Recommendation for Landowner Counsel

The Forest Society strongly recommends that any landowner undertaking a real estate transaction engage his/her own experienced legal, financial, and/or tax counsel. This helps ensure that you’re well informed and adhere to all requirements, and that your interests are properly reflected in final legal documents. Your engagement of professional advisors also strengthens the resulting conservation transaction against possible later challenge. Although the Forest Society’s staff tries to provide helpful information, the staff does not render legal, financial, or tax advice. Ultimately, it is your responsibility, with your advisors, to:

Confirm all applicable, then-current requirements for claiming a charitable deduction;

Determine the eligibility of a gift for charitable deduction purposes; &

Determine the value of the gift and resulting deduction by obtaining a qualified appraisal.

Appraisal Requirements

To qualify for and then claim a charitable deduction for your gift of land, you, with your advisors, must ensure that your gift conforms to certain IRS tax laws (“Internal Revenue Code”) and the regulations developed for them by the U.S. Treasury Department. For example, for any land gift for which you wish to claim a deduction of more than $5,000, you must obtain—including paying for—a written appraisal prepared by an independent, professional appraiser to establish the value of the land as of the date of your contribution or a date within 60 days before then.

The Forest Society requires that you provide a copy of your qualified appraisal to the staff for its review in association with the IRS tax form that you must submit with your tax return to claim the deduction (see section below on “IRS Form 8283…”). If the landowner is a pass-through entity consisting of unrelated parties, the Forest Society will require a copy of the appraisal prior to receiving the land.

The Forest Society’s land agent can provide you with a list of appraisers believed to be competent in preparing land appraisals for IRS deduction purposes. The land agent can assist you in contacting one or more appraisers regarding availability and cost estimates, and in providing maps and other information that the appraiser will likely need. As good appraisers are often busy, it’s a good idea to contact an appraiser early in the process to ensure that the appraisal can be completed on time.

Expenses you incur in making your land gift, such as for your appraisal, legal services, etc., are generally not deductible, but there may be other ways in which you can realize tax benefits from them—check with your tax advisor.

If you don’t intend to claim a tax deduction for your land gift, you don’t need to get your land appraised.

If the Forest Society has significant concerns about the tax deduction that you intend to claim, including possible deficiency of the appraisal, the Forest Society will not knowingly participate in the project.

SEE ATTACHMENT A FOR IMPORTANT ADDITIONAL DETAILS ON GETTING AN APPRAISAL MEETING IRS DEDUCTION REQUIREMENTS.

Forest Society’s Future Use of Land

The Forest Society has the legal right to use any property it acquires however it wishes as long as such use is in furtherance of the organization’s charitable mission and consistent with any restrictions that the landowner and organization may have agreed to in writing in advance of the conveyance. Many Donors make land gifts without imposing restrictions on use of the land, placing confidence in the organization’s track record, its adherence to Board-adopted policies (e.g. “Land and Real Estate Transfer and Sales Policy”), oversight of it by the state and IRS, and its self-interest in upholding the trust that others place in the organization to “do the right thing.” From a practical standpoint, making an unrestricted gift of land is faster and less costly for all parties than putting restrictions in place, which is possible. If you are considering putting restrictions on your land gift, be sure to discuss this with the Forest Society’s land agent early on in the process.

Acknowledgment of Contribution (“Substantiation”)

The IRS requires that the donor of any charitable contribution, including land, worth $250 or more obtain certain documentation of the gift, including a contemporaneous written acknowledgment (“substantiation letter”) from the donee. Shortly after receiving your land gift, the Forest Society will routinely provide a letter to you accomplishing this step.

IRS Form 8283, “Noncash Charitable Contributions”

To claim a charitable deduction for your gift of land, you must file IRS Form 8283 “Noncash Charitable Contributions” with your federal income tax return for the year of your gift. You must get this Form signed by both your appraiser and the Forest Society, whose land agent will review the Form for completeness and accuracy prior to signing. Whoever prepares your tax return should pay close attention to the IRS’ detailed instructions for Form 8283, as mistakes on this Form are common and can delay the tax filing process. The Forest Society’s land agent will be happy to review any preliminary draft of this Form at your request. For all of the above reasons, it’s important that you initiate the completion of your Form 8283 soon after making your land gift and securing your IRS appraisal.

If the Forest Society has significant concerns about the accuracy or completeness of your Form 8283, the Forest Society may decline to sign it.

SEE ATTACHMENT B FOR IMPORTANT ADDITIONAL DETAILS ON COMPLETING AND FILING IRS FORM 8283.

Landowner Acknowledgment

I/We received this information entitled “Claiming an Income Tax Deduction for Your Full or Partial Gift of Land” (including Attachments A and B) on __________________, 20__, from _________________________, of the Society for the Protection of New Hampshire Forests.

______________________________________________________

Landowner signature(s)

PLEASE COMPLETE AND RETURN THIS FORM TO THE RELEVANT LAND AGENT AT: SPNHF, 54 PORTSMOUTH ST., CONCORD, NH 03301

Attachment A—Additional Information about Appraisal Requirements

The IRS requires you to use a “qualified appraiser” for preparing a “qualified appraisal” in accordance with the Uniform Standards of Professional Appraisal Practice (USPAP) and other regulations developed by the U.S. Treasury Department in order for you to claim a charitable income tax deduction for your gift of land. Not all appraisers meet these requirements, nor do real estate brokers who might offer to prepare a “letter opinion of value.”

To evaluate your land, the appraiser will examine closely local land use regulations, real estate market conditions, and the characteristics of your land including its size, topography, soils, and access.

The IRS requires that the “qualified appraisal” be done within a certain timeframe. Specifically, if you want to get your appraisal before you make your land gift, you can do so, but you’ll need to complete your land gift within 60 days after the appraisal’s valuation date (also known as the “as of” or “effective” date) to ensure that your appraisal remains up to date. If you can’t complete your land gift that quickly, your appraiser will need to update the appraisal, which can be quick and inexpensive, or not. On the other hand, if you prefer to get your IRS appraisal after you’ve made your land gift, the appraiser must complete the report by your tax filing deadline (including extensions) for the tax year of your land gift and must use a valuation date that’s retroactive to the date of your land gift.

The IRS also requires a qualified appraisal to contain all of the following items summarized as follows:

Description of the donated land;

Date of the contribution if the appraisal was prepared afterwards;

Any agreement, understanding, or restriction about the use, sale, or disposition of the land;

Name, address, and identifying number of qualified appraiser;

Appraiser’s qualifications;

Statement that the appraisal was prepared for income tax purposes;

Date on which the property was appraised (“valuation date”);

Appraised fair market value of the land as of the valuation date;

Method of valuation, e.g. income, market data, or replacement cost approach; and

Specific basis for the valuation, e.g. comparable sales transaction.

If the Forest Society already obtained its own appraisal prior to your getting your IRS appraisal, you may find it efficient to hire that same appraiser to prepare your “qualified appraisal” as well. The appraiser may ask the Forest Society, as the earlier client, to give permission to work with you, as the later client, on the same property.

If you get your IRS appraisal prior to closing, the Forest Society will ask to receive a copy of it at least one week prior to the closing, to give the land agent adequate time to review it. Similarly, if you choose to get your IRS appraisal after closing, you should provide a copy to the Forest Society’s land agent at least a week before getting the organization’s signature on your Form 8283.

Attachment B—Additional Information About IRS Form 8283, “Noncash Charitable Contributions”

Section A of Form 8283 applies to charitable deductions not exceeding $5,000. Section B is more commonly used for land gifts, and is for deductions greater than $5,000.

You should complete your portion (Section B., Parts I and II) of the Form first. In Section B. Part I, Item 4, checking off the box for “Other real estate” will apply to most eligible land gifts. Item 5.a., immediately following, asks for a specific description of the donated property; this is an appropriate place to enter such information as ” __(#) ac. being Tax Map __, Lot __, on __ Rd., in Town of __, NH.” Other parts of Item 5 ask for financial data including the appraised fair market value of the land, and also its cost basis.

Some landowners choose to include additional attachments, such as a copy of the recorded deed or the qualified appraisal, even though not required to do so. If, however, you’re claiming a deduction larger than $500,000, you must include a copy of your appraisal with your tax return not only for the year of your initial gift but also for any subsequent years in which you might claim a “carryover” deduction.

After filling out your part of Form 8283, you’d then forward it with all attachments to your appraiser, who should complete and sign Part III and then forward the Form with all attachment(s) to the Forest Society’s land agent. You should ensure the Forest Society’s receipt of a copy of your appraisal by this same time, and should allow at least one week for review. Once an authorized agent for the Forest Society fills out and signs Part IV of the Form, the land agent will then return the completed Form 8283 to you or your advisor as instructed, for filing with your tax return.

You should start to complete Form 8283 well before your tax filing deadline, and pay close attention to the instructions for Form 8283. The Forest Society’s land agent will be happy to review a first draft of your Form 8283, if helpful.

See Treasury Regs. Sects. 1.170A-13 & 1.170A-17.

See Internal Revenue Code Sect. 170(f)(8), plus Treasury Regs. Sects. 1.170A-13 & 1.170A-17.

For “qualified appraisal” requirements, see Treasury Regs. Sects. 1.170A-13(c)(3) & 1.170A-17(a)(1). For “qualified appraiser,” see Sects. 1.170A-13(c)(5) & 1.170A-17(b)(1).