Client is selling land. They want to donate an easement so the land can't ever be developed. They will either make the contribution before the sale or require the donation as part of the sales contract.
Basis of the property is $700,000
FMV of the property is $800,000
FMV of the donation is $100,000
I calculate basis allocable to the donation of $87,500 per Ex 9 of Reg. Sec. 1.170A-14(h)(3)(iii).
Therefore, basis in the property for purposes of the sale is $612,500.
At the end of the transaction, they have a donation of $100,000 but $87,500 more gain than they would have otherwise. The difference in tax rates might be meaningful except that they have an enormous amount of LTCG and qualified dividends. Their existing deductions offset their small amount of ordinary income, so they pay tax at the lower rates. The tax benefit winds up being on $12,500, the difference between the amount of the donation and the increase in the gain.
Agree, disagree? Thanks.