Farmers who conveyed, through their limited liability company, a conservation easement to a public charity were not “qualified farmers” entitled to an enhanced charitable contribution deduction. A “qualified farmer” is an individual whose gross income from the trade or business of farming is greater than 50 percent of his gross income for the tax year. Qualified farmers who make a conservation easement contribution may deduct up to 100 percent of their basis for the year of contribution. However, other taxpayers making conservation easement donations may deduct only 50 percent of their basis.
The individuals argued that the sale of real estate used in the business of farming generated income from the trade or business of farming. However, selling property does not constitute cultivating the soil, raising agricultural or horticultural commodities, the handling of such commodities or tree farming. Therefore, selling the rights to develop the land did not generate income from the trade or business of farming. Moreover, the LLC that sold the property was not in the business of farming; it was in the business of leasing real estate to farmers. Thus, for federal income tax purposes, the income from the sale was characterized as income from the sale of real estate and that characterization flowed through to the taxpayers.
M.A. Rutkoske, 149 TC —, No. 6, Dec. 60,981
Code Sec. 170
CCH Reference – 2017FED ¶11,710.10
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CCH Reference – TRC INDIV: 51,364.05