Publication 561 |
2001 Tax Year |
Valuation of Various Kinds of Property
This section contains information on determining the FMV of
ordinary kinds of donated property. For information on appraisals, see
Appraisals, later.
Household Goods
The 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.
If the property is valuable because it is old or unique, see the
discussion under Paintings, Antiques, and Other Objects of
Art.
Used Clothing
Used 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.
For valuable furs or very expensive gowns, an appraisal summary may
have to be sent with your tax return.
Jewelry and Gems
Jewelry 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.
Paintings, Antiques,
and Other Objects of Art
Your 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.
Art valued at $20,000 or more.
If 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.
Art valued at $50,000 or more.
If 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 appraisal summary (Section B of Form 8283,
Noncash Charitable Contributions.)
- The location of the IRS District Office that has examination
responsibility for your area.
If your request lacks essential information, you will be
notified and given 30 days to provide the missing information.
Refunds.
You 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.
Authenticity.
The authenticity of the donated art must be determined by the
appraiser. Certificates of authenticity may be useful, but this
depends on the genuineness of the certificate and the qualifications
of the authenticator.
Physical condition.
Important 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.
Art appraisers.
More 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 also
contact associations of dealers for guidance.
Collections
Since 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, 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.
Reference material.
Publications 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.
Stamp collections.
Most 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.
Coin collections.
Many 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.
Books.
The 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.
Modest value of collection.
If 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.
Condition of book.
The 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.
Other factors.
Some 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.
Manuscripts, autographs, diaries, and similar items.
When 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.
Signatures.
Signatures, 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.
Cars, Boats, and Aircraft
If 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 of used car,
aircraft, truck, recreational vehicle, and boat. 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 at a bank, credit union,
or finance company.
Except 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.
Example.
You donate your car to a local high school for use by students
studying automobile repair. Your credit union told you that the
"blue book" value of a car like yours is $1,600 in good
condition. However, your car needs extensive repairs. After checking
with repair shops and used car dealers, you find that the car should
sell for $750. You may use $750 as the FMV of the car.
Inventory
If you donate any inventory item to a charitable organization, the
amount of your deductible contribution is the FMV of the item, less
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 Charitable
contributions in Chapter 16 of Publication 535,
Business
Expenses.
Stocks and Bonds
The 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)?
Selling prices on valuation date.
If 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.
No sales on valuation date.
If 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.
Example.
On 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:
Listings on more than one stock exchange.
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.
Bid and asked prices on valuation date.
If 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.
Example.
Although 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.
No prices on valuation date.
If 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.
Prices only before or after valuation date, but not both.
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.
Large blocks of stock.
When 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.
Unavailable prices or closely held corporation.
If 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 factors.
Other relevant factors include the goodwill of the business, the
economic outlook in the particular industry, the company's position in
the industry 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.
Restricted securities.
Some 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.
Real Estate
Because 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.
1. Comparable Sales
The 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.
2. Capitalization of Income
This 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.
3. Replacement Cost New or
Reproduction Cost Minus
Observed Depreciation
This 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.
Interest in a Business
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.
Annuities, Interests for
Life or Terms of
Years, Remainders, and
Reversions
The 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.
Interest rate.
The 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
local IRS office to obtain this rate.
Actuarial tables.
You 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 (Alpha
Volume) and 1458 (Beta Volume). 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.
These are available for purchase by phone at (202)512-1800 or by
mail from the:
Superintendent of Documents
United States Government
Printing Office
P.O. Box 371954
Pittsburgh, PA 15250-7954
If you call in your order,
you can pay by VISA or MasterCard.
Tables containing actuarial factors for transfers to pooled income
funds may also be found in Income Tax Regulation 1.642(c)-6(e)(5),
transfers to charitable remainder unitrusts in Regulation 1.664(e)(6),
and other transfers in Regulation 20.2031-7(d)(6).
Special factors.
If you need a special factor for an actual transaction, you may ask
for it by writing a request for a letter ruling to the:
Internal Revenue Service
Associate Chief Counsel (Domestic)
Attn: CC:DOM:Corp:T
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044
Be sure to include the date of birth of each person, the duration
of whose life may affect the value of the interest, and copies of the
relevant instruments. IRS charges a user fee for providing special
factors.
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.
Certain Life Insurance
and Annuity Contracts
The 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.
Partial Interest
in Property Not in Trust
Generally, 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.
Valuation of a remainder interest in real property, not
transferred in trust.
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 (Gamma Volume). 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. Publication 1459 is available free by writing to the
IRS address given under Special factors earlier.
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-2 of the Income Tax
Regulations.
Undivided part of your entire interest.
A 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.
Qualified conservation contribution.
A qualified conservation contribution is a contribution of a
qualified real property interest to a qualified organization to be
used only for conservation purposes.
Qualified organization.
For 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.
Conservation purposes.
Your contribution must be made only for one of the following
conservation purposes:
- Preservation of land areas for outdoor recreation by, or for
the education of, the general public.
- Protection of a relatively natural habitat of fish,
wildlife, or plants, or a similar ecosystem.
- Preservation of open space, including farmland and forest
land. The preservation must yield 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.
- Preservation of a historically important land area or a
certified historic structure. A historically important land area
includes an independently significant land area, any land area in a
registered historic district, and any land area next to a property
listed in the National Register of Historic Places if its physical or
environmental features contribute to the historic or cultural
integrity of the listed property. A certified historic structure is
any building, structure, or land area that is listed in the National
Register, or is located in a registered historic district and is
certified by the Secretary of the Interior as being of historic
significance to the district.
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 of
privacy would be unreasonable.
Qualified real property interest.
This 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 which may
be made of the real property.
Valuation.
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 only transferred a
remainder interest (item (2)), see Valuation of a remainder
interest in real property, not transferred in trust, 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
qualified 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.
Example.
You 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.
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