Farmers, ranchers and horse owners can get significant tax deductions by making noncash charitable contributions of farm property to qualified donees — such as agricultural schools or government programs. This serves two purposes: One, there is a tax deduction available; and two, by culling unneeded animals or equipment, or even land, this shows the IRS that you are mindful of costs and that you are doing what you can to operate in a businesslike manner — so as to move closer towards making a profit.
The kinds of things that one might donate include livestock, horses, equipment, tractors, motor vehicles or farmland. Certain kinds of information are needed to support the charitable contribution deduction, or written records and substantiation. First, the charity must be a “qualified” one. Most charities, whether they are schools or scientific institutes, have that status, as does any government agency. Donating property to an individual does not ordinarily qualify unless the individual operates a private foundation.
To determine how much you may deduct, you must support the fair market value of the property as of the date of contribution. Fair market value means the price the property would sell for on the open market. It is the price that a willing buyer and seller would agree upon, knowing all relevant facts. If you donate land to be used for agricultural purposes, according to the IRS “you must value the land at its value for agricultural purposes, even though it would have a higher FMV if it were not restricted.”
In donating farmland to a charity, the transfer could provide that you or a third party will have the right to all income and full use of the property for life, and the life interest subject to actuarial tables would be taken into account in computing the charitable deduction. The property must be appraised by a qualified appraiser, in accordance with generally accepted appraisal standards. The standards are set forth in the instructions to IRS Form 8283. The appraisal must be made not earlier than 60 days before you donate the property. The appraiser must sign off on Form 8283. Someone from whom you acquired the property does not ordinarily qualify as an appraiser for this purpose, unless you donated the property within two months of the date you acquired it and the property’s appraised value does not exceed its acquisition price.
One appraisal is acceptable for a group of animals or a group of similar items contributed in the same tax year. If the appraised value of donated property seems to be too high, the IRS may contact you to get more information, or refer the valuation problem to an IRS appraiser or valuation specialist.
For reporting a non-cash charitable donation you must file Form 8283 if the amount of the deduction is more than $500. The most common method of valuation looks to sales prices of property similar to the donated property.
The charitable organization that receives the property must sign a “donee acknowledgement” on Form 8283. The person signs to acknowledge the gift, and must be someone specifically authorized to sign on behalf of the organization. The form is then returned to you to file with your income tax returns.
In some cases, it is not possible to get the donee’s signature on the form. In that case the deduction will still be allowed if you attach an explanation why it was impossible to get the done to sign the form.
John Alan Cohan is a lawyer who has served the farming, livestock and horse industries since 1981.
