JCT Describes Conservation Tax Incentive Bill
JCX-8-15
- Institutional AuthorsJoint Committee on Taxation
- Cross-Reference
- Code Sections
- Subject Area/Tax Topics
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 2015-2644
- Tax Analysts Electronic Citation2015 TNT 23-26
Scheduled for Markup
by the
HOUSE COMMITTEE ON WAYS AND MEANS
on February 4, 2015
Prepared by the Staff
of the
JOINT COMMITTEE ON TAXATION
February 3, 2015
JCX-8-15
CONTENTS
INTRODUCTION
A. Special Rule for Qualified Conservation Contributions
Modified and Made Permanent (sec. 170(b) of the Code)
B. Estimated Revenue Effects
The House Committee on Ways and Means has scheduled a committee markup of H.R. 641, the "Conservation Easement Incentive Act of 2015," on February 4, 2015. This document,1 prepared by the staff of the Joint Committee on Taxation, provides a description of the bill.
A. Special Rule for Qualified Conservation Contributions Modified
and Made Permanent (sec. 170(b) of the Code)
Present Law
Charitable contributions generally
In general, a deduction is permitted for charitable contributions, subject to certain limitations that depend on the type of taxpayer, the property contributed, and the donee organization. The amount of deduction generally equals the fair market value of the contributed property on the date of the contribution. Charitable deductions are provided for income, estate, and gift tax purposes.2
In general, in any taxable year, charitable contributions by a corporation are not deductible to the extent the aggregate contributions exceed ten percent of the corporation's taxable income computed without regard to net operating or capital loss carrybacks. Total deductible contributions of an individual taxpayer to public charities, private operating foundations, and certain types of private nonoperating foundations generally may not exceed 50 percent of the taxpayer's contribution base, which is the taxpayer's adjusted gross income for a taxable year (disregarding any net operating loss carryback). To the extent a taxpayer has not exceeded the 50-percent limitation, (1) contributions of capital gain property to public charities generally may be deducted up to 30 percent of the taxpayer's contribution base, (2) contributions of cash to most private nonoperating foundations and certain other charitable organizations generally may be deducted up to 30 percent of the taxpayer's contribution base, and (3) contributions of capital gain property to private foundations and certain other charitable organizations generally may be deducted up to 20 percent of the taxpayer's contribution base.
Contributions in excess of the applicable percentage limits generally may be carried over and deducted over the next five taxable years, subject to the relevant percentage limitations on the deduction in each of those years.
Capital gain property
Capital gain property means any capital asset or property used in the taxpayer's trade or business the sale of which at its fair market value, at the time of contribution, would have resulted in gain that would have been long-term capital gain. Contributions of capital gain property to a qualified charity are deductible at fair market value within certain limitations. Contributions of capital gain property to charitable organizations described in section 170(b)(1)(A) (e.g., public charities, private foundations other than private non-operating foundations, and certain governmental units) generally are deductible up to 30 percent of the taxpayer's contribution base. An individual may elect, however, to bring all these contributions of capital gain property for a taxable year within the 50-percent limitation category by reducing the amount of the contribution deduction by the amount of the appreciation in the capital gain property. Contributions of capital gain property to charitable organizations described in section 170(b)(1)(B) (e.g., private non-operating foundations) are deductible up to 20 percent of the taxpayer's contribution base.
For purposes of determining whether a taxpayer's aggregate charitable contributions in a taxable year exceed the applicable percentage limitation, contributions of capital gain property are taken into account after other charitable contributions.
Qualified conservation contributions
Qualified conservation contributions are one exception to the "partial interest" rule, which generally bars deductions for charitable contributions of partial interests in property.3 A qualified conservation contribution is a contribution of a qualified real property interest to a qualified organization exclusively for conservation purposes. A qualified real property interest is defined as: (1) the entire interest of the donor other than a qualified mineral interest; (2) a remainder interest; or (3) a restriction (granted in perpetuity) on the use that may be made of the real property. Qualified organizations include certain governmental units, public charities that meet certain public support tests, and certain supporting organizations. Conservation purposes include: (1) the preservation of land areas for outdoor recreation by, or for the education of, the general public; (2) the protection of a relatively natural habitat of fish, wildlife, or plants, or similar ecosystem; (3) the preservation of open space (including farmland and forest land) where such preservation will yield a significant public benefit and is either for the scenic enjoyment of the general public or pursuant to a clearly delineated Federal, State, or local governmental conservation policy; and (4) the preservation of an historically important land area or a certified historic structure.
Qualified conservation contributions of capital gain property are subject to the same limitations and carryover rules as other charitable contributions of capital gain property.
Temporary rules regarding contributions of capital gain real property for conservation purposes
In general
Under a temporary provision4 the 30-percent contribution base limitation on deductions for contributions of capital gain property by individuals does not apply to qualified conservation contributions (as defined under present law). Instead, individuals may deduct the fair market value of any qualified conservation contribution to the extent of the excess of 50 percent of the contribution base over the amount of all other allowable charitable contributions. These contributions are not taken into account in determining the amount of other allowable charitable contributions.
Individuals are allowed to carry over any qualified conservation contributions that exceed the 50-percent limitation for up to 15 years.
For example, assume an individual with a contribution base of $100 makes a qualified conservation contribution of property with a fair market value of $80 and makes other charitable contributions subject to the 50-percent limitation of $60. The individual is allowed a deduction of $50 in the current taxable year for the non-conservation contributions (50 percent of the $100 contribution base) and is allowed to carry over the excess $10 for up to 5 years. No current deduction is allowed for the qualified conservation contribution, but the entire $80 qualified conservation contribution may be carried forward for up to 15 years.
Farmers and ranchers
In the case of an individual who is a qualified farmer or rancher for the taxable year in which the contribution is made, a qualified conservation contribution is deductible up to 100 percent of the excess of the taxpayer's contribution base over the amount of all other allowable charitable contributions.
In the above example, if the individual is a qualified farmer or rancher, in addition to the $50 deduction for non-conservation contributions, an additional $50 for the qualified conservation contribution is allowed and $30 may be carried forward for up to 15 years as a contribution subject to the 100-percent limitation.
In the case of a corporation (other than a publicly traded corporation) that is a qualified farmer or rancher for the taxable year in which the contribution is made, any qualified conservation contribution is deductible up to 100 percent of the excess of the corporation's taxable income (as computed under section 170(b)(2)) over the amount of all other allowable charitable contributions. Any excess may be carried forward for up to 15 years as a contribution subject to the 100-percent limitation.5
As an additional condition of eligibility for the 100-percent limitation, with respect to any contribution of property in agriculture or livestock production, or that is available for such production, by a qualified farmer or rancher, the qualified real property interest must include a restriction that the property remain generally available for such production. (There is no requirement as to any specific use in agriculture or farming, or necessarily that the property be used for such purposes, merely that the property remain available for such purposes.)
A qualified farmer or rancher means a taxpayer whose gross income from the trade or business of farming (within the meaning of section 2032A(e)(5)) is greater than 50 percent of the taxpayer's gross income for the taxable year.
Termination
The temporary rules regarding contributions of capital gain real property for conservation purposes do not apply to contributions made in taxable years beginning after December 31, 2014.6
Description of Proposal
The proposal reinstates and makes permanent the increased percentage limits and extended carryforward period for qualified conservation contributions.
The proposal also includes special rules for qualified conservation contributions by certain Native Corporations. For this purpose, the term Native Corporation has the meaning given such term by section 3(m) of the Alaska Native Claims Settlement Act.7 In the case of any qualified conservation contribution which is made by a Native Corporation and is a contribution of property that was land conveyed under the Alaska Native Claims Settlement Act, a deduction for the contribution is allowed to the extent that the aggregate amount of such contributions does not exceed the excess of 100 percent of the taxpayer's taxable income over the amount of all other allowable charitable contributions. Any excess may be carried forward for up to 15 years as a contribution subject to the 100-percent limitation. The proposal shall not be construed to modify the existing property rights validly conveyed to Native Corporations under the Alaska Native Claims Settlement Act.
Effective Date
The proposal applies to contributions made in taxable years beginning after December 31, 2014.
B. Estimated Revenue Effects
Fiscal Years
[Millions of Dollars]
_____________________________________________________________________
2015 2016 2017 2018 2019 2020
_____________________________________________________________________
-25 -73 -86 -90 -94 -103
2021 2022 2023 2024 2025 2015-20 2015-25
_____________________________________________________________________
-120 -136 -150 -164 -178 -470 -1,220
_____________________________________________________________________
NOTE: Details do not add to totals due to rounding.
1 This document may be cited as follows: Joint Committee on Taxation, Description of H.R. 641, the "Conservation Easement Incentive Act of 2015" (JCX-8-15), February 3, 2015. This document can also be found on the Joint Committee on Taxation website at www.jct.gov.
2 Secs. 170, 2055, and 2522, respectively.
3 Secs. 170(f)(3)(B)(iii) and 170(h).
4 Sec. 170(b)(1)(E).
5 Sec. 170(b)(2)(B).
6 Secs. 170(b)(1)(E)(vi) and 170(b)(2)(B)(iii).
7 43 U.S.C. sec. 1602(m) (providing that the term Native Corporation includes "any Regional Corporation, any Village Corporation, any Urban Corporation, and any Group Corporation," as those terms are defined under the Alaska Native Claims Settlement Act).
END OF FOOTNOTES
- Institutional AuthorsJoint Committee on Taxation
- Cross-Reference
- Code Sections
- Subject Area/Tax Topics
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 2015-2644
- Tax Analysts Electronic Citation2015 TNT 23-26