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Charitable donation of land


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#1 Huey.1

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Posted 19 November 2012 - 02:06 PM

My family owns a farm in Jefferson Co, KY. We have been approached by a non-profit organization to donate part of the farm so they may build a medical treatment and research facility. What are the best tax benefits of doing this? How long can we take advantage of these benefits? Would it be better to donate part of the land or a percentage of the fair market value?

The farm has been in the family since 1930 and it has been handed down from my grandfather to father then to my siblings and I. I believe the cost basis per acre is $0 and fair market value exceeds $250,000 an acre. The organization wants 40 acres of the 140 acre farm.

Appreciate your thoughts on the pro and cons of this venture.

Huey.1

#2 adjusterjack

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Posted 19 November 2012 - 04:38 PM

What do you mean by "in the family"?

The important question is who's on the deed?

That's because the person or persons on the deed is going to get the tax deduction.

Might not matter what the basis was if you are going to donate the property.

But what I think you'll have to do is subdivide to separate out the 40 acre parcel and then get that 40 acres appraised by a licensed real estate appraiser.

Whatever the appraised value is would be what the charitable deduction is.

I have to admit I am just making some educated guesses so I suggest you sit down with a tax pro and make sure you get it right.

Oh, and make sure you carefully check the "non-profit" organization with the IRS to make sure that it's legitimately a charitable organization under the IRS rules that would allow you to take the donation as a charitable deduction.

"Non-profit" doesn't always mean tax-exempt or qualified as a charitable organization.

Warning: Legal issues are complicated. Explanations and comments here are simplified and might not fully explain the ramifications of your particular issue. I am not a lawyer. I do not give legal advice. I make comments based on my knowledge and experience. I guarantee nothing. If you act on my comments without the advice of an attorney, you do so at your own risk.


#3 Tax_Counsel

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Posted 19 November 2012 - 06:08 PM

What are the best tax benefits of doing this? How long can we take advantage of these benefits? Would it be better to donate part of the land or a percentage of the fair market value?


With respect to federal income tax, if the "non-profit organization" is also a tax exempt organization under IRC ยง 501©(3), the general rule is that a taxpayer donating real estate to the tax exempt organization may deduct as a charitable the fair market value of the property. This reduces your taxable income and avoids the recognition of gain on the property. This is a very good tax move to make if you have a lot of other taxable income. Note that there are limits on the contribution and that you may carry forward to future tax years the unused portion of the charitable deduction. See IRS publication 526 for more details. Given the kind of money involved here, I suggest you consult a tax attorney for advice. There may be other approaches to this that might work out better for you than simply donating the 40 acres depending on what your personal circumstances are.

#4 Guest_FindLaw_Amir_*

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Posted 20 November 2012 - 07:41 AM

I agree with the previous poster, this is an issue you may wish to consult with a local Jefferson County, Kentucky Tax Lawyer to advise further on your options.

#5 Huey.1

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Posted 20 November 2012 - 05:42 PM

Thanks much for your quick responses. The situation will require some homework to best take advantage of tax laws and benefit from it ourselves. Yes we do plan to consult with a lawyer.

This is early in the process and we have agreed to pursue the "letter of intent" which the entity wants 40 acres total, 13 acres donated. The specifics to follow in the purchase agreement. I believe this is out of the ordinary and quite scary for my family so am hopeful that there are examples of this type transaction that we could follow or some websites that can spell out what pitfalls to look for.

Any wisdom you can give is much appreciated.

Huey.1

#6 adjusterjack

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Posted 21 November 2012 - 04:18 PM

"Family" again?

Who's on the deed? That's the person or persons who should be concerned with this.

Warning: Legal issues are complicated. Explanations and comments here are simplified and might not fully explain the ramifications of your particular issue. I am not a lawyer. I do not give legal advice. I make comments based on my knowledge and experience. I guarantee nothing. If you act on my comments without the advice of an attorney, you do so at your own risk.





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