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- Internal Revenue Code Section 170(h)
- Internal Revenue Code Section 47
- US Code of Federal Regulations, Section 1.170A-13
- US Code of Federal Regulations, Section 1.170A-14
- Public Law 109-280
- Internal Revenue Service Publication 561 - Determining the Value of Donated Property
- Internal Revenue Service Publication 526 - Charitable Contributions
Internal Revenue Code Section 170(h)
Qualified Conservation Contribution
(1) In general. For purposes of subsection (f)(3)(B)(iii), the term "qualified conservation contribution" means a contribution --
(A) of a qualified real property interest,
(B) to a qualified organization,
(C) exclusively for conservation purposes.
(2) Qualified real property interest. For purposes of this subsection, the term "qualified real property interest" means any of the following interests in real property --
(A) the entire interest of the donor other than a qualified mineral interest,
(B) a remainder interest, and
(C) a restriction (granted in perpetuity) on the use which may be made of the real property.
(3) Qualified organization. For purposes of paragraph (1), the term "qualified organization" means an organization which --
(A) is described in clause (v) or (vi) of subsection (b)(1)(A), or
(B) is described in section 501(c)(3) [26 USCS § 501 (c)(3)] and
(i) meets the requirements of section 509(a)(2) [26 USCS § 509 (a)(2)], or
(ii) meets the requirements of section 509(a)(3) [26 USCS § 509 (a)(3)] and is controlled by an organization described in subparagraph (A) or in clause (i) of this subparagraph.
(4) Conservation purpose defined.
(A) In general. For purposes of this subsection, the term "conservation purpose" means --
(i) the preservation of land areas for outdoor recreation by, or the education of, the general public,
(ii) the protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem,
(iii) the preservation of open space (including farmland and forest land) where such preservation is:
(I) for the scenic enjoyment of the general public, or
(II) pursuant to a clearly delineated Federal, State, or local governmental conservation policy, and will yield a significant public benefit, or
(iv) the preservation of an historically important land area or a certified historic structure.
(B) Special Rules with respect to buildings in registered historic districts. In the case of any contribution of a qualified real property interest which is a restriction with respect to the exterior of a building described in subparagraph (C)(ii), such contribution shall not be considered to be exclusively for conservation purposes unless --
(i) such interest
(I) Includes a restriction which preserves the entire exterior of the building (including the front, sides, rear, and height of the building), and
(II) prohibits any change in the exterior of the building which is inconsistent with the historical character of such exterior,
(ii) the donor and donee enter into a written agreement certifying, under penalty of perjury, that the donee --
(I) is a qualified organization (as defined in paragraph (3)) with a purpose of environmental protection, land conservation, open space preservation, or historic preservation, and
(II) has the resources to manage and enforce the restriction and a commitment to do so, and
(iii) in the case of any contribution made in a taxable year beginning after the date of the enactment of this subparagraph [enacted Aug. 17, 2006], the taxpayer includes with the taxpayer's return for the taxable year of the contribution --
(I) a qualified appraisal (within the meaning of subsection (f)(11)(E)of the qualified property interest,
(II) photographs of the entire exterior of the building, and
(III) a description of all restrictions on the development of the building.
(C) Certified historic structure. For purposes of subparagraph (A)(iv), the term "certified historic structure" means --
(i) any building, structure, or land area which is listed in the National Register, or
(ii) any building which is located in a registered historic district (as defined in section 47(c)(3)(B) [26 USCS § 47(c)(3)(B)] and is certified by the Secretary of the Interior to the Secretary as being of historic significance to the district.
A building, structure, or land area satisfies the preceding sentence if it satisfies such sentence either at the time of the transfer or on the due date (including extensions) for filing the tranfer or on the due date (including extensions) for filing the transferor's return under this chapter [26 USCS § 1 et seq.] for the taxable year in which the tranfer is made.
(5) Exclusively for conservation purposes. For purposes of this subsection --
(A) Conservation purpose must be protected. A contribution shall not be treated as exclusively for conservation purposes unless the conservation purpose is protected in perpetuity.
(B) No surface mining permitted.
(i) In general. Except as provided in clause (ii), in the case of a contribution of any interest where there is a retention of a qualified mineral interest, subparagraph (A) shall not be treated as met if at any time there may be extraction or removal of minerals by any surface mining method.
(ii) Special rule. With respect to any contribution of property in which the ownership of the surface estate and mineral interests has been and remains separated, subparagraph (A) shall be treated as met if the probability of surface mining occurring on such property is so remote as to be negligible.
(6) Qualified mineral interest. For purposes of this subsection, the term "qualified mineral interest" means --
(A) subsurface oil, gas, or other minerals, and
(B) the right to access to such minerals.
Internal Revenue Code Section 47
Internal Revenue Code Section 47
(a) General Rule. --
For purposes of section 46, the rehabilitation credit for any taxable year is the sum of --
(1) 10 percent of the qualified rehabilitation expenditures with respect to any qualified rehabilitated building other than a certified historic structure, and
(2) 20 percent of the qualified rehabilitation expenditures with respect to any certified historic structure.
(b) When Expenditures Taken Into Account. --
(1) In General. --
Qualified rehabilitation expenditures with respect to any qualified rehabilitated building shall be taken into account for the taxable year in which such qualified rehabilitated building is placed in service.
(2) Coordination With Subsection (d). --
The amount which would (but for this paragraph) be taken into account under paragraph (1) with respect to any qualified rehabilitated building shall be reduced (but not below zero) by any amount of qualified rehabilitation expenditures taken into account under subsection (d) by the taxpayer or a predecessor of the taxpayer (or, in the case of a sale and leaseback described in section 50(a)(2)(C), by the lessee), to the extent any amount so taken into account has not been required to be recaptured under section 50(a).
(c) Definitions. --
For purposes of this section --
(1) Qualified Rehabilitated Building. --
(A) In General. --
The term 'qualified rehabilitated building' means any building (and its structural components) if --
(i) such building has been substantially rehabilitated,
(ii) such building was placed in service before the beginning of the rehabilitation,
(iii) in the case of any building other than a certified historic structure, in the rehabilitation process --
(I) 50 percent or more of the existing external walls of such building are retained in place as external walls.
(II) 75 percent or more of the existing external walls of such building are retained in place as internal or external walls, and
(III) 75 percent or more of the existing internal structural framework of such building is retained in place, and
(iv) depreciation (or amortization in lieu of depreciation) is allowable with respect to such building.
(B) Building Must Be First Placed In Service Before 1936. --
In the case of a building other than a certified historic structure, a building shall not be a qualified rehabilitated building unless the building was first placed in service before 1936.
(C) Substantially Rehabilitated Defined. --
(i) In General. --
For purposes of subparagraph (A)(i), a building shall be treated as having been substantially rehabilitated only if the qualified rehabilitation expenditures during the 24-month period selected by the taxpayer (at the time and in the manner prescribed by regulation) and ending with or within the taxable year exceed the greater of --
(I) the adjusted basis of such building (and its structural components), or
(II) $5,000. The adjusted basis of the building (and its structural components) shall be determined as of the beginning of the 1st day of such 24-month period, or of the holding period of the building, whichever is later. For purposes of the preceding sentence, the determination of the beginning of the holding period shall be made without regard to any reconstruction by the taxpayer in connection with the rehabilitation.
(ii) Special Rule For Phased Rehabilitation. --
In the case of any rehabilitation which may reasonably be expected to be completed in phases set forth in architectural plans and specifications completed before the rehabilitation begins, clause (i) shall be applied by substituting '60-month period' for '24-month period'.
(iii) Lessees. --
The Secretary shall prescribe by regulation rules for applying this subparagraph to lessees.
(D) Reconstruction. --
Rehabilitation includes reconstruction.
(2) Qualified Rehabilitation Expenditure Defined. --
(A) In General. --
The term 'qualified rehabilitation expenditure' means any amount properly chargeable to capital account --
(i) for property for which depreciation is allowable under section 168 and which is --
(I) nonresidential real property,
(II) residential rental property,
(III) real property which has a class life of more than 12.5 years, or
(IV) an addition or improvement to property described in subclause (I), (II), or (III), and
(ii) in connection with the rehabilitation of a qualified rehabilitated building.
(B) Certain Expenditures Not Included. --
The term `qualified rehabilitation expenditure' does not include --
(i) Straight Line Depreciation Must Be Used. --
Any expenditure with respect to which the taxpayer does not use the straight line method over a recovery period determined under subsection (c) or (g) of section 168. The preceding sentence shall not apply to any expenditure to the extent the alternative depreciation system of section 168(g) applies to such expenditure by reason of subparagraph (B) or (C) of section 168(g)(1).
(ii) Cost Of Acquisition. --
The cost of acquiring any building or interest therein.
(iii) Enlargements. --
Any expenditure attributable to the enlargement of an existing building.
(iv) Certified Historic Structure, Etc. --
Any expenditure attributable to the rehabilitation of a certified historic structure or a building in a registered historic district, unless the rehabilitation is a certified rehabilitation (within the meaning of subparagraph (C)). The preceding sentence shall not apply to a building in a registered historic district if --
(I) such building was not a certified historic structure,
(II) the Secretary of the Interior certified to the Secretary that such building is not of historic significance to the district, and
(III) if the certification referred to in subclause (II) occurs after the beginning of the rehabilitation of such building, the taxpayer certifies to the Secretary that, at the beginning of such rehabilitation, he in good faith was not aware of the requirements of subclause (II).
(v) Tax-exempt Use Property. --
(I) In General. --
Any expenditure in connection with the rehabilitation of a building which is allocable to the portion of such property which is (or may reasonably by expected to be) tax-exempt use property (within the meaning of section 168(h)).
(II) Clause Not To Apply For Purposes Of Paragraph (1)(c). --
This clause shall not apply for purposes of determining under paragraph (1)(C) whether a building has been substantially rehabilitated.
(vi) Expenditures Of Lessee. --
Any expenditure of a lessee of a building if, on the date the rehabilitation is completed, the remaining term of the lease (determined without regard to any renewal periods) is less than the recovery period determined under section 168(c).
(C) Certified Rehabilitation. --
For purposes of subparagraph (B), the term 'certified rehabilitation' means any rehabilitation of a certified historic structure which the Secretary of the Interior has certified to the Secretary as being consistent with the historic character consistent with the historic character of such property or the district in which such property is located.
(D) Nonresidential Real Property; Residential Rental Property; Class Life. --
For purposes of subparagraph (A), the terms `nonresidential real property,' `residential rental property,' and `class life' have the respective meanings given such terms by section 168.
(3) Certified Historic Structure Defined. --
(A) In General. --
The term 'certified historic structure' means any building (and its structure components) which --
(i) is listed in the National Register, or
(ii) is located in a registered historic district and is certified by the Secretary of the Interior to the Secretary as being of historic significance to the district.
(B) Registered Historic District. --
The term 'registered historic district' means --
(i) any district listed in the National Register, and
(ii) any district --
(I) which is designated under a statute of the appropriate State or local government, if such statute is certified by the Secretary of the Interior to the Secretary as containing criteria which will substantially achieve the purpose of preserving and rehabilitating buildings of historic significance to the district, and
(II) which is certified by the Secretary of the Interior to the Secretary as meeting substantially all of the requirements for the listing of districts in the National Register.
US Code of Federal Regulations, Section 1.170A-13
Recordkeeping and Return Requirements for Deductions for Charitable Contributions
Section 1.170A-13
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US Code of Federal Regulations, Section 1.170A-14
The US Code of Federal Regulations, Section 1.170A-14, contains the IRS standards used to determine if a conservation easement may be claimed as a charitable contribution deduction for Federal income tax purposes. The following excerpts from this section are particularly relevant to "Façade Conservation Easements" and have been compiled to assist tax professionals to review and advise a client on the requirements of making such a donation.
(a) Qualified conservation contributions. A deduction under Section 170 is generally not allowed for a charitable contribution of any interest in property that consists of less than the donor's entire interest in the property other than certain transfers in trust (see Sec. 1.170A-6 relating to charitable contributions in trust and Sec. 1.170A-7 relating to contributions not in trust of partial interests in property). However, a deduction may be allowed under section 170(f) (3) (B) (iii) for the value of a qualified conservation contribution if the requirements of this section are met. A qualified conservation contribution is the contribution of a qualified real property interest to a qualified organization exclusively for conservation purposes. To be eligible for a deduction under this section, the conservation purpose must be protected in perpetuity.
(b) Qualified organization. (1) Eligible donee. To be considered an eligible donee under this section, an organization must be a qualified organization, have a commitment to protect the conservation purposes of the donation, and have the resources to enforce the restrictions. A conservation group organized or operated primarily or substantially for one of the conservation purposes specified in section 170(h) (4) (A) will be considered to have the commitment required by the preceding sentence. For purposes of this section, the term qualified organization means: (iii) A charitable organization described in section 501(c) (3) that meets the public support test of section 509(a) (2).
(c) (2) Transfers by donee. A deduction shall be allowed for a contribution under this section only if in the instrument of conveyance the donor prohibits the donee from subsequently transferring the easement (or, in the case of a remainder interest or the reservation of a qualified mineral interest, the property), whether or not for consideration, unless the donee organization, as a condition of the subsequent transfer, requires that the conservation purposes which the contribution was originally intended to advance continue to be carried out. Moreover, subsequent transfers must be restricted to organizations qualifying, at the time of the subsequent transfer, as an eligible donee under paragraph (c) (1) of this section.
(d) (5) Historic preservation. (i) In general. The donation of a qualified real property interest to preserve a historically important land area or a certified historic structure will meet the conservation purposes test of this section. When restrictions to preserve a building or land area within a registered historic district permit future development on the site, a deduction will be allowed under this section only if the terms of the restrictions require that such development conform to appropriate local, State, or Federal standards for construction or rehabilitation within the district. See also, Section 1.170A-14(h) (3) (ii).
(d) (5) (iii) Certified historic structure. The term certified historic structure, for the purposes of this section, means any building, structure or land area that is:
- Listed in the National Register, or
- Located in a registered historic district (as defined in Section 48(g) (3) (B)) and is certified by the Secretary of the Interior (pursuant to 36 CFR 67.4) to the Secretary of the Treasury as being of historic significance to the district.
A structure for purposes of this section means any structure, whether or not it is depreciable. Accordingly, easements on private residences may qualify under this section. In addition, a structure would be considered to be a certified historic structure if it were certified either at the time the transfer was made or at the due date (including extensions) for filing the donor's return for the taxable year in which the contribution was made.
(g) Enforceable in perpetuity. (1) In general. In the case of any donation under this section, any interest in the property retained by the donor (and the donor's successors in interest) must be subject to legally enforceable restrictions (for example, by recordation in the land records of the jurisdiction in which the property is located) that will prevent uses of the retained interest inconsistent with the conservation purposes of the donation.
(g) (2) Protection of a conservation purpose in case of donation of property subject to a mortgage. In the case of conservation contributions made after February 13, 1986, no deduction will be permitted under this section for an interest in property, which is subject to a mortgage unless the mortgagee subordinates its rights in the property to the right of the qualified organization to enforce the conservation purposes of the gift in perpetuity. For conservation contributions made prior to February 14, 1986, the requirement of section 170(h) (5) (A) is satisfied in the case of mortgaged property (with respect to which the mortgagee has not subordinated its rights) only if the donor can demonstrate that the conservation purpose is protected in perpetuity without subordination of the mortgagee's rights.
(g) (5) (D) (ii) Donee's right to inspection and legal remedies. In the case of any donation referred to in paragraph (g) (5) (i) of this section, the donor must agree to notify the donee, in writing, before exercising any reserved right, e.g. the right to extract certain minerals which may have an adverse impact on the conservation interests associated with the qualified real property interest. The terms of the donation must provide a right of the donee to enter the property at reasonable times for the purpose of inspecting the property to determine if there is compliance with the terms of donation. Additionally, the terms of the donation must provide a right of the donee to enforce the conservation restrictions by appropriate legal proceedings, including but not limited to, the right to require the restoration of the property to its condition at the time of the donation.
(g) (6) Extinguishment. (i) In general. If a subsequent unexpected change in the conditions surrounding the property that is the subject of a donation under this paragraph can make impossible or impractical the continued use of the property for conservation purposes, the conservation purpose can nonetheless be treated as protected in perpetuity if the restrictions are extinguished by judicial proceeding and all of the donee's proceeds (determined under paragraph (g) (6) (ii) of this section) from a subsequent sale or exchange of the property are used by the donee organization in a manner consistent with the conservation purposes of the original contribution.
(ii) Proceeds. In case of a donation made after February 13, 1986, for a deduction to be allowed under this section, at the time of the gift the donor must agree that the donation of the perpetual conservation restriction gives rise to a property right, immediately vested in the donee organization, with a fair market value that is at least equal to the proportionate value that the perpetual conservation restriction at the time of the gift, bears to the value of the property as a whole at that time. See Sec. 1.170A-14 (h) (3) (iii) relating to the allocation of basis. For purposes of this paragraph (g) (6) (ii), the proportionate value of the donee's property rights shall remain constant. Accordingly, when a change in conditions give rise to the extinguishment of a perpetual conservation restriction under paragraph (g) (6) (i) of this section, the donee organization, on a subsequent sale, exchange, or involuntary conversion of the subject property, must be entitled to a portion of the proceeds at least equal to that proportionate value of the perpetual conservation restriction, unless state law provides that the donor is entitled to the full proceeds from the conversion without regard to the terms of the prior perpetual conservation restriction.
(i) Substantial requirement. If a taxpayer makes a qualified conservation contribution and claims a deduction, the taxpayer must maintain written records of the fair market value of the underlying property before and after the donation and the conservation purpose furthered by the donation and such information shall be stated in the taxpayer's income tax return if required by the return or its instructions. See also Sec. 1.170A-13(c) (relating to substantiation requirements for deductions in excess of $5,000 for charitable contributions made after 1984), and section 6659 (relating to additions to tax in the case of valuation overstatements).
Public Law 109-280
On August 17, the President signed legislation that will increase the incentives for property owners to donate conservation easements. The law, P.L. 109-280 also includes provisions to curb potential abuses.
The Trust for Architectural Easements applauds Congress for taking meaningful action to reaffirm the value of the historic preservation easement program and to expand its usefulness as a vital tool in the campaign for voluntary preservation. The Trust also supports the new provisions designed to minimize the potential for abuse.
P.L. 109-280, also known as the "Pension Protection Act of 2006", is located at http://waysandmeans.house.gov/media/pdf/taxdocs/pensiontextpt1.pdf.
Internal Revenue Service Publication 561 - Determining the Value of Donated Property
Determining the Value of Donated Property
This publication is designed to help donors and appraisers determine the value of property (other than cash) that is given to qualified organizations. It also explains what kind of information you must have to support the charitable contribution deduction you claim on your return.
IRS Publication 561 - Determining the Value of Donated Property
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Internal Revenue Service Publication 526 - Charitable Contributions
Charitable Contributions
This publication explains how to claim a deduction for your charitable contributions. It discusses organizations that are qualified to receive deductible charitable contributions, the types of contributions you can deduct, how much you can deduct, what records to keep, and how to report charitable contributions.
IRS Publication 526 - Charitable Contributions
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