Can You Donate Land to Charity for a Tax Deduction?

Donating land to a qualified charitable organization is a philanthropic act that can also provide a tax benefit. The process is more complex than a cash donation, involving specific valuation and documentation requirements to satisfy IRS regulations. Understanding the framework for these contributions is the first step for any landowner considering this path.

Methods of Donating Land

A landowner has several distinct methods for donating real estate, each with different implications for ownership and tax treatment. The most direct path is an outright donation, which involves transferring the complete title and ownership of the land to the charity. The donor relinquishes all rights and responsibilities associated with the property, such as paying property taxes or maintenance costs. This method is often chosen when the donor has no further use for the land and wishes for the charity to have maximum flexibility.

Conservation Easement

Another approach is the donation of a conservation easement. In this scenario, the landowner donates the development rights of the property to a qualified organization, such as a land trust or conservation group, while retaining ownership of the land itself. This legally binding agreement permanently restricts the type and amount of development that can occur on the property to protect its natural or historical features. The value of the donation is the difference in the land’s fair market value before and after the easement is put in place.

Bargain Sale

A bargain sale is a hybrid transaction that combines a sale with a charitable gift. The landowner sells the property to a charity for a price below its appraised fair market value. The difference between the fair market value and the lower sale price constitutes the charitable donation. This method can be advantageous for a donor who wants to receive some cash from the property but also desires to make a contribution. If the property has a mortgage, complex “bargain sale” rules may apply, which could trigger some capital gains tax.

Donation of a Remainder Interest

A donation of a remainder interest allows a donor to gift a property to a charity while retaining the right to use it for the rest of their life, a structure known as a life estate. The donor executes a deed to transfer ownership to the charity but carves out a provision that allows them to use the property until their death. Upon the death of the life estate holder, the charity gains full control and ownership of the property. The tax deduction is calculated based on the present value of the property that will eventually be received by the charity, a figure determined by IRS actuarial tables.

Required Information and Appraisal

Before a tax deduction for a land donation can be claimed, a donor must gather specific information and documentation, with the appraisal being a central component. For any noncash contribution valued at more than $5,000, the IRS requires the donor to obtain a “qualified appraisal” from a “qualified appraiser.” This formal report must substantiate the property’s fair market value (FMV), which is the price a willing buyer would pay a willing seller for the property, with neither being under compulsion to buy or sell and both having reasonable knowledge of relevant facts.

A “qualified appraiser” must have earned an appraisal designation from a recognized professional organization or otherwise met minimum education and experience requirements. They must also regularly perform appraisals for which they are paid and demonstrate verifiable experience in valuing the type of property being appraised. The appraisal itself must be made no earlier than 60 days before the date of the contribution and must be received by the donor before the due date of the tax return on which the deduction is claimed. The appraiser must also sign a declaration on the relevant tax form, certifying the appraisal’s compliance.

Property Holding Period

The length of time a donor has owned the property is a factor that directly impacts the calculation of the tax deduction. If the land has been held for more than one year, it is considered “long-term capital gain property.” In this case, the donor can deduct the full fair market value of the property, allowing them to deduct the appreciated value without having to first realize it as a capital gain. Conversely, if the land has been held for one year or less, it is classified as “ordinary income property,” and the deduction is limited to the donor’s cost basis, which is the amount the donor originally paid for the property.

Required Documentation (Form 8283)

The primary document for reporting a noncash charitable contribution is IRS Form 8283, Noncash Charitable Contributions, which must be filed with the donor’s federal income tax return. For donations of property valued over $5,000, the donor must complete Section B of this form. This section requires detailed information, including a description of the donated property, the date it was acquired by the donor, how it was acquired, and the donor’s cost basis. Section B also requires signatures from both the qualified appraiser and an authorized officer of the recipient charitable organization. The appraiser’s signature certifies that they are qualified and the appraisal meets IRS requirements, while the charity’s signature acknowledges receipt of the property but is not an endorsement of the appraised value.

Calculating the Charitable Deduction

The calculation of the charitable deduction begins with the fair market value (FMV) of the property as determined by the qualified appraisal. For land held for more than one year, this appraised FMV is the starting point for the potential deduction. However, this amount is not guaranteed to be fully deductible in the year of the donation due to limitations based on the donor’s income.

Adjusted Gross Income (AGI) Limitations

The amount a donor can deduct in one year is subject to limits based on their adjusted gross income (AGI). For donations of long-term capital gain property to most public charities, the deduction is limited to 30% of the donor’s AGI. For example, if a donor with an AGI of $200,000 donates land valued at $100,000, their deduction in the first year would be capped at $60,000. Other limits may apply depending on the type of property and the recipient organization, such as a 50% of AGI limitation for donations of ordinary income property.

Deduction Carryover

When the value of a donated property exceeds the donor’s AGI limit for the year, the unused portion of the deduction is not lost. The IRS permits donors to carry forward the excess deduction for up to five subsequent tax years. To continue the previous example, the donor who donated land worth $100,000 but was limited to a $60,000 deduction would have an excess of $40,000. This amount can be carried over to the next tax year and deducted, subject to the same 30% of AGI limit in that year.

Completing the Donation and Tax Filing

Once the donation method is selected and the appraisal is complete, the final steps involve legally transferring the property and reporting the gift on the donor’s tax return. The legal transfer formally conveys ownership from the donor to the charitable organization and establishes the date of the contribution.

Legal Transfer of Property

The legal transfer of land is accomplished by executing a deed. This document, signed by the donor, formally names the charitable organization as the new owner of the property. After the deed is signed and notarized, it must be recorded with the appropriate local government office, such as the county recorder’s office where the property is located. Recording the deed provides public notice of the change in ownership.

Submitting Tax Forms

When filing their federal income tax return, the donor must attach the completed Form 8283. Failure to include this form and the required appraisal summary can result in the disallowance of the deduction.

Post-Donation Expectations

After the donation is complete and the tax return is filed, the donor should maintain thorough records of the entire transaction. This includes keeping copies of the recorded deed, the full qualified appraisal report, and the completed Form 8283. If the charity sells the donated property within three years, it is required to file Form 8282, Donee Information Return, with the IRS and provide a copy to the donor, reporting the sale price.