OAR 150-316-0635: Subtraction for Land Contributed to Educational Institutions

(1) General. A taxpayer who donates land, or who sells land at less than its fair market value, to a qualified educational institution may claim a subtraction from income. The subtraction is limited to a specific percentage of the taxpayer’s contribution base. Any subtraction not allowed because it exceeds the specified percentage of the contribution base may be carried forward for a maximum of 15 years. An individual’s contribution base is defined in section 170 of the Internal Revenue Code as federal adjusted gross income computed without regard to any net operating loss carryback. (2) Donations of land. If land is donated to a qualified entity, the Oregon subtraction cannot exceed 50 percent of the taxpayer’s contribution base. Example 1: Sandy’s contribution base is $100,000. Sandy donates land with a fair market value of $60,000 to a public school district. Sandy’s subtraction on the Oregon return is limited to $50,000. (3) Reduced sale of land. If land is sold to a qualified entity for less than its fair market value, the Oregon subtraction cannot exceed 25 percent of the contribution base. Example 2: Mary has a contribution base of $100,000. Mary sells land worth $175,000 to a local school district for $120,000 cash. Mary is limited to a subtraction on the Oregon return of $25,000. (4) Add-back of amounts claimed as a federal deduction. If the taxpayer has claimed a deduction for the donation or reduced sale of land for federal purposes, the amount deducted from federal income must be added to Oregon income if a subtraction is taken under this provision. Example 3: Singh’s contribution base is $100,000. He contributes $27,000 to a church and land worth $40,000 to a university. Singh must consider two limitations in figuring his charitable contribution deduction for federal purposes. First, his total charitable contribution deduction cannot exceed 50 percent of his contribution base, or $50,000 (50 percent of $100,000). Second, the donation of land, which is capital gain property, cannot exceed 30 percent of his contribution base, or $30,000. Singh’s contribution of land worth $40,000 is limited to a deduction of $23,000, which is the unused portion of the overall $50,000 deduction limit after taking into account his $27,000 cash donation. To figure the Oregon subtraction, Singh restores $23,000, the amount of federal deduction he received for his qualifying land donation, to federal income by showing it as an addition to income on his Oregon return. He then computes the Oregon subtraction for the land donation as the lesser of: (a) $50,000 (50 percent of his contribution base of $100,000); or (b) $40,000 (fair market value of the land that is the qualified donation). Singh benefits from the full $40,000 donation on his Oregon return in the year of donation. (5) If the taxpayer’s itemized deductions for Oregon are limited because of the phase-out requirements under section 68 of the Internal Revenue Code, the amount of the addition will be computed using the formula shown at OAR 150-316-0557. Example 4: Max has a contribution base of $100,000. During the tax year he gave $35,000 cash to a 50 percent limitation charitable organization. He owned land with a fair market value (FMV) of $75,000 near an Oregon public high school. The school wanted the property for a sports field. Max agreed to exchange his property for a piece of property owned by the school district with a FMV of $25,000. His contribution from this qualifying reduced sale is $50,000; that is, $75,000 fair market value given up less $25,000 fair market value received. For federal purposes, his contribution of the land is limited to 30 percent of his contribution base, $30,000, and is further limited to $15,000, the unused portion of 50 percent of his contribution base, $50,000, after taking into account his $35,000 cash donation. His federal charitable deduction for the land is $15,000 with a five-year carryover of the remaining $35,000. On his Oregon return he first restores the $15,000 to income by showing an Oregon addition for that amount. He then computes his Oregon subtraction for the qualified bargain sale of land as 25 percent of his $100,000 contribution base. His Oregon subtraction is $25,000 with a fifteen-year carryover of the remaining $25,000.