Publication 561
taxmap/pubs/p561-001.htm#TXMP3ed3cfccThis section contains information on determining the FMV of ordinary
kinds of donated property. For information on appraisals, see
Appraisals,
later.
taxmap/pubs/p561-001.htm#TXMP086d6365The FMV of used household goods, such as furniture, appliances,
and linens, is usually much lower than the price paid when new. Such used
property may have little or no market value because of its worn condition. It
may be out of style or no longer useful.
You cannot take a deduction for household goods donated after
August 17, 2006, unless they are in good used condition or better. A household
good that is not in good used condition or better for which you take a deduction
of more than $500 requires a qualified appraisal. See
Deduction over $500 for certain clothing or household items, later.
If the property is valuable because it is old or unique, see
the discussion under
Paintings, Antiques, and Other Objects of Art.
taxmap/pubs/p561-001.htm#TXMP4d1ecfc9Used clothing and other personal items are usually worth far
less than the price you paid for them. Valuation of items of clothing does not
lend itself to fixed formulas or methods.
The price that buyers of used items actually pay in used clothing
stores, such as consignment or thrift shops, is an indication of the value.
You cannot take a deduction for clothing donated after August
17, 2006, unless it is in good used condition or better. An item of clothing
that is not in good used condition or better for which you take a deduction of
more than $500 requires a qualified appraisal. See
Deduction over $500 for certain clothing or household items, later.
For valuable furs or very expensive gowns, a Form 8283 may have
to be sent with your tax return.
taxmap/pubs/p561-001.htm#TXMP01e7ac86Jewelry and gems are of such a specialized nature that it is
almost always necessary to get an appraisal by a specialized jewelry appraiser.
The appraisal should describe, among other things, the style of the jewelry, the
cut and setting of the gem, and whether it is now in fashion. If not in fashion,
the possibility of having the property redesigned, recut, or reset should be
reported in the appraisal. The stone's coloring, weight, cut, brilliance, and
flaws should be reported and analyzed. Sentimental personal value has no effect
on FMV. But if the jewelry was owned by a famous person, its value might
increase.
taxmap/pubs/p561-001.htm#TXMP7c7bcdf8Your deduction for contributions of paintings, antiques, and
other objects of art, should be supported by a written appraisal from a
qualified and reputable source, unless the deduction is $5,000 or less. Examples
of information that should be included in appraisals of art
objects—paintings in particular—are found later under
Qualified Appraisal.
taxmap/pubs/p561-001.htm#TXMP336ca60bIf you claim a deduction of $20,000 or more for donations of
art, you must attach a complete copy of the signed appraisal to your return. For
individual objects valued at $20,000 or more, a photograph of a size and quality
fully showing the object, preferably an 8 x 10 inch color photograph or a color
transparency no smaller than 4 x 5 inches, must be provided upon request.
taxmap/pubs/p561-001.htm#TXMP6ae0cc60If you donate an item of art that has been appraised at $50,000
or more, you can request a Statement of Value for that item from the IRS. You
must request the statement before filing the tax return that reports the
donation. Your request must include the following.
- A copy of a qualified appraisal of the item. See
Qualified Appraisal,
later.
- A $2,500 check or money order payable to the Internal Revenue
Service for the user fee that applies to your request regarding one, two, or
three items of art. Add $250 for each item in excess of three.
- A completed Form 8283, Section B.
- The location of the IRS territory that has examination responsibility
for your return.
If your request lacks essential information, you will be notified
and given 30 days to provide the missing information.
Send your request to:
Internal Revenue Service
Attention: Art Appraisal (C:AP:ART)
P.O. Box 27720
McPherson Station
Washington, DC 20038
taxmap/pubs/p561-001.htm#TXMP7eb8082bYou can withdraw your request for a Statement of Value at any
time before it is issued. However, the IRS will not refund the user fee if you
do.
If the IRS declines to issue a Statement of Value in the interest
of efficient tax administration, the IRS will refund the user fee.
taxmap/pubs/p561-001.htm#TXMP5ffbd1f3The authenticity of the donated art must be determined by the
appraiser.
taxmap/pubs/p561-001.htm#TXMP785338a9Important items in the valuation of antiques and art are physical
condition and extent of restoration. These have a significant effect on the
value and must be fully reported in an appraisal. An antique in damaged
condition, or lacking the "original brasses," may be worth much less than a
similar piece in excellent condition.
taxmap/pubs/p561-001.htm#TXMP7917b767More weight will usually be given to an appraisal prepared by
an individual specializing in the kind and price range of the art being
appraised. Certain art dealers or appraisers specialize, for example, in old
masters, modern art, bronze sculpture, etc. Their opinions on the authenticity
and desirability of such art would usually be given more weight than the
opinions of more generalized art dealers or appraisers. They can report more
recent comparable sales to support their opinion.
To identify and locate experts on unique, specialized items or
collections, you may wish to use the current Official Museum Directory of the
American Association of Museums. It lists museums both by state and by category.
To help you locate a qualified appraiser for your donation, you
may wish to ask an art historian at a nearby college or the director or curator
of a local museum. The Yellow Pages often list specialized art and antique
dealers, auctioneers, and art appraisers. You may be able to find a qualified
appraiser on the Internet. You may also contact associations of dealers for
guidance.
taxmap/pubs/p561-001.htm#TXMP34c08f8eSince many kinds of hobby collections may be the subject of a
charitable donation, it is not possible to discuss all of the possible
collectibles in this publication. Most common are rare books, autographs, sports
memorabilia, dolls, manuscripts, stamps, coins, guns, phonograph records, and
natural history items. Many of the elements of valuation that apply to paintings
and other objects of art, discussed earlier, also apply to miscellaneous
collections.
taxmap/pubs/p561-001.htm#TXMP28cf3fc8Publications available to help you determine the value of many
kinds of collections include catalogs, dealers' price lists, and specialized
hobby periodicals. When using one of these price guides, you must use the
current edition at the date of contribution. However, these sources are not
always reliable indicators of FMV and should be supported by other evidence.
For example, a dealer may sell an item for much less than is
shown on a price list, particularly after the item has remained unsold for a
long time. The price an item sold for in an auction may have been the result of
a rigged sale or a mere bidding duel. The appraiser must analyze the reference
material, and recognize and make adjustments for misleading entries. If you are
donating a valuable collection, you should get an appraisal. If your donation
appears to be of little value, you may be able to make a satisfactory valuation
using reference materials available at a state, city, college, or museum
library.
taxmap/pubs/p561-001.htm#TXMP41e3d4cdMost libraries have catalogs or other books that report the publisher's
estimate of values. Generally, two price levels are shown for each stamp: the
price postmarked and the price not postmarked. Stamp dealers generally know the
value of their merchandise and are able to prepare satisfactory appraisals of
valuable collections.
taxmap/pubs/p561-001.htm#TXMP32854ee4Many catalogs and other reference materials show the writer's
or publisher's opinion of the value of coins on or near the date of the
publication. Like many other collectors' items, the value of a coin depends on
the demand for it, its age, and its rarity. Another important factor is the
coin's condition. For example, there is a great difference in the value of a
coin that is in mint condition and a similar coin that is only in good
condition.
Catalogs usually establish a category for coins, based on their
physical condition—mint or uncirculated, extremely fine, very fine, fine,
very good, good, fair, or poor—with a different valuation for each
category.
taxmap/pubs/p561-001.htm#TXMP3255e577The value of books is usually determined by selecting comparable
sales and adjusting the prices according to the differences between the
comparable sales and the item being evaluated. This is difficult to do and,
except for a collection of little value, should be done by a specialized
appraiser. Within the general category of literary property, there are dealers
who specialize in certain areas, such as Americana, foreign imports, Bibles, and
scientific books.
taxmap/pubs/p561-001.htm#TXMP50272680If the collection you are donating is of modest value, not requiring
a written appraisal, the following information may help you in determining the
FMV.
A book that is very old, or very rare, is not necessarily valuable.
There are many books that are very old or rare, but that have little or no
market value.
taxmap/pubs/p561-001.htm#TXMP557c58f5The condition of a book may have a great influence on its value.
Collectors are interested in items that are in fine, or at least good,
condition. When a book has a missing page, a loose binding, tears, stains, or is
otherwise in poor condition, its value is greatly lowered.
taxmap/pubs/p561-001.htm#TXMP23761015Some other factors in the valuation of a book are the kind of
binding (leather, cloth, paper), page edges, and illustrations (drawings and
photographs). Collectors usually want first editions of books. However, because
of changes or additions, other editions are sometimes worth as much as, or more
than, the first edition.
taxmap/pubs/p561-001.htm#TXMP10f60963When these items are handwritten, or at least signed by famous
people, they are often in demand and are valuable. The writings of unknowns also
may be of value if they are of unusual historical or literary importance.
Determining the value of such material is difficult. For example, there may be a
great difference in value between two diaries that were kept by a famous
person—one kept during childhood and the other during a later period in
his or her life. The appraiser determines a value in these cases by applying
knowledge and judgment to such factors as comparable sales and conditions.
taxmap/pubs/p561-001.htm#TXMP6a99ff3fSignatures, or sets of signatures, that were cut from letters
or other papers usually have little or no value. But complete sets of the
signatures of U.S. presidents are in demand.
taxmap/pubs/p561-001.htm#TXMP54603c74If you donate a car, a boat, or an aircraft to a charitable organization,
its FMV must be determined.
Certain commercial firms and trade organizations publish monthly
or seasonal guides for different regions of the country, containing complete
dealer sale prices or dealer average prices for recent model years. Prices are
reported for each make, model, and year. These guides also provide estimates for
adjusting for unusual equipment, unusual mileage, and physical condition. The
prices are not "official," and these publications are not considered an
appraisal of any specific donated property. But they do provide clues for making
an appraisal and suggest relative prices for comparison with current sales and
offerings in your area.
These publications are sometimes available from public libraries
or at a bank, credit union, or finance company. You can also find pricing
information about used cars on the Internet.
An acceptable measure of the FMV of a donated car, boat, or airplane
is an amount not in excess of the price listed in a used vehicle pricing guide
for a private party sale, not the dealer retail value, of a similar vehicle.
However, the FMV may be less than that amount if the vehicle has engine trouble,
body damage, high mileage, or any type of excessive wear. The FMV of a donated
vehicle is the same as the price listed in a used vehicle pricing guide for a
private party sale only if the guide lists a sales price for a vehicle that is
the same make, model, and year, sold in the same area, in the same condition,
with the same or similar options or accessories, and with the same or similar
warranties as the donated vehicle.
taxmap/pubs/p561-001.htm#TXMP6fc6f607You donate a used car in poor condition to a local high school
for use by students studying car repair. A used car guide shows the dealer
retail value for this type of car in poor condition is $1,600. However, the
guide shows the price for a private party sale of the car is only $750. The FMV
of the car is considered to be no more than $750.
taxmap/pubs/p561-001.htm#TXMP2b20ce51Except for inexpensive small boats, the valuation of boats should
be based on an appraisal by a marine surveyor because the physical condition is
so critical to the value.
taxmap/pubs/p561-001.htm#TXMP2f65c26fYour deduction for a donated car, boat, or airplane generally
is limited to the gross proceeds from its sale by the qualified organization.
This rule applies if the claimed value of the donated vehicle is more than $500.
In certain cases, you can deduct the vehicle's FMV. For details, see Publication
526.
taxmap/pubs/p561-001.htm#TXMP4b0f69a6If you donate any inventory item to a charitable organization,
the amount of your deductible contribution generally is the FMV of the item,
minus any gain you would have realized if you had sold the item at its FMV on
the date of the gift. For more information, see Publication 526.
taxmap/pubs/p561-001.htm#TXMP036d89d6To determine the FMV of a patent, you must take into account,
among other factors:
- Whether the patented technology has been made obsolete by
other technology;
- Any restrictions on the donee's use of, or ability to transfer,
the patented technology; and
- The length of time remaining before the patent expires.
However, your deduction for a donation of a patent or other intellectual
property is its FMV, minus any gain you would have realized if you had sold the
property at its FMV on the date of the gift. Generally, this means your
deduction is the lesser of the property's FMV or its basis. For details, see
Publication 526.
taxmap/pubs/p561-001.htm#TXMP5cb9d064The value of stocks and bonds is the FMV of a share or bond on
the valuation date. See
Date of contribution,
earlier, under
What Is Fair Market Value (FMV).
taxmap/pubs/p561-001.htm#TXMP01565e5cIf there is an active market for the contributed stocks or bonds
on a stock exchange, in an over-the-counter market, or elsewhere, the FMV of
each share or bond is the average price between the highest and lowest quoted
selling prices on the valuation date. For example, if the highest selling price
for a share was $11, and the lowest $9, the average price is $10. You get the
average price by adding $11 and $9 and dividing the sum by 2.
taxmap/pubs/p561-001.htm#TXMP528ad106If there were no sales on the valuation date, but there were
sales within a reasonable period before and after the valuation date, you
determine FMV by taking the average price between the highest and lowest sales
prices on the nearest date before and on the nearest date after the valuation
date. Then you weight these averages in inverse order by the respective number
of trading days between the selling dates and the valuation date.
taxmap/pubs/p561-001.htm#TXMP040746d1On the day you gave stock to a qualified organization, there
were no sales of the stock. Sales of the stock nearest the valuation date took
place two trading days before the valuation date at an average selling price of
$10 and three trading days after the valuation date at an average selling price
of $15. The FMV on the valuation date was $12, figured as follows:
| [(3 x $10) | + | (2 x $15)] | ÷ | 5 | = | $12 |
Stocks or bonds listed on more than one stock exchange are valued
based on the prices of the exchange on which they are principally dealt. This
applies if these prices are published in a generally available listing or
publication of general circulation. If this is not applicable, and the stocks or
bonds are reported on a composite listing of combined exchanges in a publication
of general circulation, use the composite list. See also
Unavailable prices or closely held corporation,
later.
taxmap/pubs/p561-001.htm#TXMP78a4173aIf there were no sales within a reasonable period before and
after the valuation date, the FMV is the average price between the bona fide bid
and asked prices on the valuation date.
taxmap/pubs/p561-001.htm#TXMP3eb9da9fAlthough there were no sales of Blue Corporation stock on the
valuation date, bona fide bid and asked prices were available on that date of
$14 and $16, respectively. The FMV is $15, the average price between the bid and
asked prices.
taxmap/pubs/p561-001.htm#TXMP5df2609aIf there were no prices available on the valuation date, you
determine FMV by taking the average prices between the bona fide bid and asked
prices on the closest trading date before and after the valuation date. Both
dates must be within a reasonable period. Then you weight these averages in
inverse order by the respective number of trading days between the bid and asked
dates and the valuation date.
taxmap/pubs/p561-001.htm#TXMP7374a536On the day you gave stock to a qualified organization, no prices
were available. Bona fide bid and asked prices 3 days before the valuation date
were $10 and 2 days after the valuation date were $15. The FMV on the valuation
date is $13, figured as follows:
| [(2 x $10) | + | (3 x $15)] | ÷ | 5 | = | $13 |
If no selling prices or bona fide bid and asked prices are available
on a date within a reasonable period before the valuation date, but are
available on a date within a reasonable period after the valuation date, or vice
versa, then the average price between the highest and lowest of such available
prices may be treated as the value.
taxmap/pubs/p561-001.htm#TXMP6ee07bd8When a large block of stock is put on the market, it may lower
the selling price of the stock if the supply is greater than the demand. On the
other hand, market forces may exist that will afford higher prices for large
blocks of stock. Because of the many factors to be considered, determining the
value of large blocks of stock usually requires the help of experts specializing
in underwriting large quantities of securities, or in trading in the securities
of the industry of which the particular company is a part.
taxmap/pubs/p561-001.htm#TXMP29d0a0c9If selling prices or bid and asked prices are not available,
or if securities of a closely held corporation are involved, determine the FMV
by considering the following factors.
- For bonds, the soundness of the security, the interest yield,
the date of maturity, and other relevant factors.
- For shares of stock, the company's net worth, prospective
earning power and dividend-paying capacity, and other relevant factors.
Other relevant factors include:
- The nature and history of the business, especially its recent
history,
- The goodwill of the business,
- The economic outlook in the particular industry,
- The company's position in the industry, its competitors, and
its management, and
- The value of securities of corporations engaged in the same
or similar business.
For preferred stock, the most important factors are its yield,
dividend coverage, and protection of its liquidation preference.
You should keep complete financial and other information on which
the valuation is based. This includes copies of reports of examinations of the
company made by accountants, engineers, or any technical experts on or close to
the valuation date.
taxmap/pubs/p561-001.htm#TXMP7e57bd11Some classes of stock cannot be traded publicly because of restrictions
imposed by the Securities and Exchange Commission, or by the corporate charter
or a trust agreement. These restricted securities usually trade at a discount in
relation to freely traded securities.
To arrive at the FMV of restricted securities, factors that you
must consider include the resale provisions found in the restriction agreements,
the relative negotiating strengths of the buyer and seller, and the market
experience of freely traded securities of the same class as the restricted
securities.
taxmap/pubs/p561-001.htm#TXMP2debd1d9Because each piece of real estate is unique and its valuation
is complicated, a detailed appraisal by a professional appraiser is necessary.
The appraiser must be thoroughly trained in the application of
appraisal principles and theory. In some instances the opinions of equally
qualified appraisers may carry unequal weight, such as when one appraiser has a
better knowledge of local conditions.
The appraisal report must contain a complete description of the
property, such as street address, legal description, and lot and block number,
as well as physical features, condition, and dimensions. The use to which the
property is put, zoning and permitted uses, and its potential use for other
higher and better uses are also relevant.
In general, there are three main approaches to the valuation
of real estate. An appraisal may require the combined use of two or three
methods rather than one method only.
taxmap/pubs/p561-001.htm#TXMP50bdfd28The comparable sales method compares the donated property with
several similar properties that have been sold. The selling prices, after
adjustments for differences in date of sale, size, condition, and location,
would then indicate the estimated FMV of the donated property.
If the comparable sales method is used to determine the value
of unimproved real property (land without significant buildings, structures, or
any other improvements that add to its value), the appraiser should consider the
following factors when comparing the potential comparable property and the
donated property:
- Location, size, and zoning or use restrictions,
- Accessibility and road frontage, and available utilities and
water rights,
- Riparian rights (right of access to and use of the water by
owners of land on the bank of a river) and existing easements, rights-of-way,
leases, etc.,
- Soil characteristics, vegetative cover, and status of mineral
rights, and
- Other factors affecting value.
For each comparable sale, the appraisal must include the names
of the buyer and seller, the deed book and page number, the date of sale and
selling price, a property description, the amount and terms of mortgages,
property surveys, the assessed value, the tax rate, and the assessor's appraised
FMV.
The comparable selling prices must be adjusted to account for
differences between the sale property and the donated property. Because
differences of opinion may arise between appraisers as to the degree of
comparability and the amount of the adjustment considered necessary for
comparison purposes, an appraiser should document each item of adjustment.
Only comparable sales having the least adjustments in terms of
items and/or total dollar adjustments should be considered as comparable to the
donated property.
taxmap/pubs/p561-001.htm#TXMP4a3a0c14This method capitalizes the net income from the property at a
rate that represents a fair return on the particular investment at the
particular time, considering the risks involved. The key elements are the
determination of the income to be capitalized and the rate of capitalization.
taxmap/pubs/p561-001.htm#TXMP1ad14eb2This method, used alone, usually does not result in a determination
of FMV. Instead, it generally tends to set the upper limit of value,
particularly in periods of rising costs, because it is reasonable to assume that
an informed buyer will not pay more for the real estate than it would cost to
reproduce a similar property. Of course, this reasoning does not apply if a
similar property cannot be created because of location, unusual construction, or
some other reason. Generally, this method serves to support the value determined
from other methods. When the replacement cost method is applied to improved
realty, the land and improvements are valued separately.
The replacement cost of a building is figured by considering
the materials, the quality of workmanship, and the number of square feet or
cubic feet in the building. This cost represents the total cost of labor and
material, overhead, and profit. After the replacement cost has been figured,
consideration must be given to the following factors:
- Physical deterioration—the wear and tear on the building
itself,
- Functional obsolescence—usually in older buildings with,
for example, inadequate lighting, plumbing, or heating, small rooms, or a poor
floor plan, and
- Economic obsolescence—outside forces causing the whole
area to become less desirable.
The FMV of any interest in a business, whether a sole proprietorship
or a partnership, is the amount that a willing buyer would pay for the interest
to a willing seller after consideration of all relevant factors. The relevant
factors to be considered in valuing the business are:
- The FMV of the assets of the business,
- The demonstrated earnings capacity of the business, based
on a review of past and current earnings, and
- The other factors used in evaluating corporate stock, if they
apply.
The value of the goodwill of the business should also be taken
into consideration. You should keep complete financial and other information on
which you base the valuation. This includes copies of reports of examinations of
the business made by accountants, engineers, or any technical experts on or
close to the valuation date.
taxmap/pubs/p561-001.htm#TXMP78bc8fa0The value of these kinds of property is their present value,
except in the case of annuities under contracts issued by companies regularly
engaged in their sale. The valuation of these commercial annuity contracts and
of insurance policies is discussed later under
Certain Life Insurance and Annuity Contracts.
To determine present value, you must know the applicable interest
rate and use actuarial tables.
taxmap/pubs/p561-001.htm#TXMP5ac443d6The applicable interest rate varies. It is announced monthly
in a news release and published in the Internal Revenue Bulletin as a Revenue
Ruling. The interest rate to use is under the heading "Rate Under Section 7520"
for a given month and year. You can call the IRS office at 1-800-829-1040 to
obtain this rate.
taxmap/pubs/p561-001.htm#TXMP6c756e33You need to refer to actuarial tables to determine a qualified
interest in the form of an annuity, any interest for life or a term of years, or
any remainder interest to a charitable organization.
Use the valuation tables set forth in IRS Publications 1457,
Actuarial Values (Book Aleph), and 1458, Actuarial Values (Book Beth). Both of
these publications provide tables containing actuarial factors to be used in
determining the present value of an annuity, an interest for life or for a term
of years, or a remainder or reversionary interest. For qualified charitable
transfers, you can use the factor for the month in which you made the
contribution or for either of the 2 months preceding that month.
Publication 1457 also contains actuarial factors for computing
the value of a remainder interest in a charitable remainder annuity trust and a
pooled income fund. Publication 1458 contains the factors for valuing the
remainder interest in a charitable remainder unitrust. You can download
Publications 1457 and 1458 from
www.irs.gov. In addition, they are available for purchase via the website
of the U. S. Government Printing Office, by phone at (202) 512-1800, or by mail
from the:
Superintendent of Documents
P.O. Box 371954
Pittsburgh, PA 15250-7954Tables containing actuarial factors for transfers to pooled
income funds may also be found in Income Tax Regulation 1.642(c)-6(e)(6),
transfers to charitable remainder unitrusts in Regulation 1.664-4(e), and other
transfers in Regulation 20.2031-7(d)(6).
If you need a special factor for an actual transaction, you can
request a letter ruling. Be sure to include the date of birth of each person the
duration of whose life may affect the value of the interest. Also include copies
of the relevant instruments. IRS charges a user fee for providing special
factors.
For more information about requesting a ruling, see Revenue Procedure
2006-1 (or annual update), 2006-1 I.R.B. 1. Revenue Procedure 2006-1 is
available at
www.irs.gov/irb/2006-01_IRB/ar06.html.
For information on the circumstances under which a charitable
deduction may be allowed for the donation of a partial interest in property not
in trust, see
Partial Interest in Property Not in Trust,
later.
taxmap/pubs/p561-001.htm#TXMP7e264e48The value of an annuity contract or a life insurance policy issued
by a company regularly engaged in the sale of such contracts or policies is the
amount that company would charge for a comparable contract.
But if the donee of a life insurance policy may reasonably be
expected to cash the policy rather than hold it as an investment, then the FMV
is the cash surrender value rather than the replacement cost.
If an annuity is payable under a combination annuity contract
and life insurance policy (for example, a retirement income policy with a death
benefit) and there was no insurance element when it was transferred to the
charity, the policy is treated as an annuity contract.
taxmap/pubs/p561-001.htm#TXMP2828f43cGenerally, no deduction is allowed for a charitable contribution,
not made in trust, of less than your entire interest in property. However, this
does not apply to a transfer of less than your entire interest if it is a
transfer of:
- A remainder interest in your personal residence or farm,
- An undivided part of your entire interest in property, or
- A qualified conservation contribution.
The amount of the deduction for a donation of a remainder interest
in real property is the FMV of the remainder interest at the time of the
contribution. To determine this value, you must know the FMV of the property on
the date of the contribution. Multiply this value by the appropriate factor.
Publications 1457 and 1458 contain these factors.
You must make an adjustment for depreciation or depletion using
the factors shown in Publication 1459, Actuarial Values (Book Gimel). You can
use the factors for the month in which you made the contribution or for either
of the two months preceding that month. See the earlier discussion on
Annuities, Interests for Life or Terms of Years, Remainders,
and Reversions. You can download Publication 1459 from
www.irs.gov.
For this purpose, the term "depreciable property" means any property
subject to wear and tear or obsolescence, even if not used in a trade or
business or for the production of income.
If the remainder interest includes both depreciable and nondepreciable
property, for example a house and land, the FMV must be allocated between each
kind of property at the time of the contribution. This rule also applies to a
gift of a remainder interest that includes property that is part depletable and
part not depletable. Take into account depreciation or depletion only for the
property that is subject to depreciation or depletion.
For more information, see section 1.170A-12 of the Income Tax
Regulations.
taxmap/pubs/p561-001.htm#TXMP29ca93f6A contribution of an undivided part of your entire interest in
property must consist of a part of each and every substantial interest or right
you own in the property. It must extend over the entire term of your interest in
the property. For example, you are entitled to the income from certain property
for your life (life estate) and you contribute 20% of that life estate to a
qualified organization. You can claim a deduction for the contribution if you do
not have any other interest in the property. To figure the value of a
contribution involving a partial interest, see Publication 1457.
If the only interest you own in real property is a remainder
interest and you transfer part of that interest to a qualified organization, see
the previous discussion on valuation of a remainder interest in real property.
taxmap/pubs/p561-001.htm#TXMP71021295A qualified conservation contribution is a contribution of a
qualified real property interest to a qualified organization to be used only for
conservation purposes.
taxmap/pubs/p561-001.htm#TXMP5c19c456For purposes of a qualified conservation contribution, a qualified
organization is:
- A governmental unit,
- A publicly supported charitable, religious, scientific, literary,
educational, etc., organization, or
- An organization that is controlled by, and operated for the
exclusive benefit of, a governmental unit or a publicly supported charity.
The organization also must have a commitment to protect the
conservation purposes of the donation and must have the resources to enforce the
restrictions.
Your contribution must be made only for one of the following
conservation purposes.
- Preserving land areas for outdoor recreation by, or for the
education of, the general public.
- Protecting a relatively natural habitat of fish, wildlife,
or plants, or a similar ecosystem.
- Preserving open space, including farmland and forest land,
if it yields a significant public benefit. It must be either for the scenic
enjoyment of the general public or under a clearly defined federal, state, or
local governmental conservation policy.
- Preserving a historically important land area or a certified
historic structure. There must be some visual public access to the property.
Factors used in determining the type and amount of public access required
include the historical significance of the property, the remoteness or
accessibility of the site, and the extent to which intrusions on the privacy of
individuals living on the property would be unreasonable.
A contribution after July 25, 2006, of a qualified real property
interest that is an easement or other restriction on the exterior of a building
in a registered historic district is deductible only if it meets all of the
following three conditions.
- The restriction must preserve the entire exterior of the building
and must prohibit any change to the exterior of the building that is
inconsistent with its historical character.
- You and the organization receiving the contribution must enter
into a written agreement certifying, that the organization is a qualified
organization and that it has the resources and commitment to maintain the
property as donated.
- If you make the contribution in a tax year beginning after
August 17, 2006, you must include with your return:
- A qualified appraisal,
- Photographs of the building's entire exterior, and
- A description of all restrictions on development of the
building, such as zoning laws and restrictive covenants.
If you make this type of contribution after February 12, 2007,
and claim a deduction of more than $10,000, your deduction will not be allowed
unless you pay a $500 filing fee. See Form 8283-V, Payment Voucher for Filing
Fee Under Section 170(f)(13), and its instructions.
taxmap/pubs/p561-001.htm#TXMP3fa5e949This is any of the following interests in real property.
- Your entire interest in real estate other than a mineral interest
(subsurface oil, gas, or other minerals, and the right of access to these
minerals).
- A remainder interest.
- A restriction (granted in perpetuity) on the use that may
be made of the real property.
A qualified real property interest described in (1) should be
valued in a manner that is consistent with the type of interest transferred. If
you transferred all the interest in the property, the FMV of the property is the
amount of the contribution. If you do not transfer the mineral interest, the FMV
of the surface rights in the property is the amount of the contribution.
If you owned only a remainder interest or an income interest
(life estate), see
Undivided Part of Your Entire Interest,
earlier. If you owned the entire property but transferred only
a remainder interest (item (2)), see
Remainder Interest in Real Property, earlier.
In determining the value of restrictions, you should take into
account the selling price in arm's-length transactions of other properties that
have comparable restrictions. If there are no comparable sales, the restrictions
are valued indirectly as the difference between the FMVs of the property
involved before and after the grant of the restriction.
The FMV of the property before contribution of the restriction
should take into account not only current use but the likelihood that the
property, without the restriction, would be developed. You should also consider
any zoning, conservation, or historical preservation laws that would restrict
development. Granting an easement may increase, rather than reduce, the value of
property, and in such a situation no deduction would be allowed.
taxmap/pubs/p561-001.htm#TXMP2a099c0cYou own 10 acres of farmland. Similar land in the area has an
FMV of $2,000 an acre. However, land in the general area that is restricted
solely to farm use has an FMV of $1,500 an acre. Your county wants to preserve
open space and prevent further development in your area.
You grant to the county an enforceable open space easement in
perpetuity on 8 of the 10 acres, restricting its use to farmland. The value of
this easement is $4,000, determined as follows:
FMV of the property before
granting easement:
| |
| $2,000 × 10 acres | $20,000 |
FMV of the property after
granting easement:
| |
| $1,500 × 8 acres | $12,000 | |
| $2,000 × 2 acres | 4,000 | 16,000 |
| Value of easement | | $4,000 |
If you later transfer in fee your remaining interest in the 8
acres to another qualified organization, the FMV of your remaining interest is
the FMV of the 8 acres reduced by the FMV of the easement granted to the first
organization.
taxmap/pubs/p561-001.htm#TXMP671b55ceFor more information about qualified conservation contributions,
see Publication 526.
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