Conservation Easements

How do you record conservation easements (CE)? My current thoughts are to just create an ongoing CE "other asset" account and debit the purchase price to start. Easy enough.

The interesting part is the donation. I am thinking to use the K-1 to debit the CE account for the increase in basis and then record the donation as a credit to the CE account. I would use the "donations" category for the decrease to the CE account, but what account would I use for the increase in basis immediately prior to the donation? I don't want to use an income account because it's not truly income, just a valuation adjustment. I guess I could credit the donations account???

Another issue is the timing of adjusting the account. The donation transaction would occur in December, but I just got a draft K-1 (not even a final yet) last week. I suppose I could do an estimated entry?

In a way I just want to record the initial contribution as "tax expense" and be done with it! :D

Best Answer

  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    Accepted Answer
    How have you accounted for your partnership interest in the past?  I assume your first entry was a debit to a security or other asset for your buy-in?
    Frankly it's almost impossible to account for a complicated partnership in Quicken since partnership Schedule K-1's are almost always prepared on a tax basis with dozens and dozens of possible codes related to special Statutory provisions like "Code X. Section 965(c) deduction" and "Code F. Section 743(b) positive income adjustments" which are pretty meaningless to most people. 
    In your first paragraph you say "...just create an ongoing CE "other asset" account and debit the purchase price to start" and I wasn't sure what that meant, exactly.  I guess you were talking about your share of the partnership's selling price?  Then you wonder about the "other side" of that entry and if you look at what I posted above then the only other place to make that entry is a reduction of your basis in the partnership since that's where the land lives on your books.  But the "debit" (increase in cash) for the sale (purchase price?) of the land also "lives" in your partnership basis as well as the (assumed) loss (contribution?). 
    Very, very broadly speaking your basis in the partnership increases with "income", decreases with "losses", increases when you put in more cash or property and decreases when the partnership makes distributions to you.  If you can keep your basis in line with the Schedule K-1 (assuming your basis is "inside" basis and not "outside" basis) you're doing pretty good and since the Schedule K-1 will handle all the Statutory issues I probably wouldn't struggle to somehow single out the CE within Quicken.

Answers

  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    edited April 20
    You didn't donate the property to a land trust or something?  You actually sold this property, presumably for less than it was actually worth, hence the "donation" aspect?
    I've never been involved in one of these but based on the assumption that there was a sale at less than FMV I'd think something along the lines of:
    Debit (increase) Checking Account                      $AAA
    Credit (decrease) Property Account                     $BBB  ($BBB is greater than $AAA)
    To make the entry balance you'd then
    Debit (increase) Charitable Donation Category  $CCC   ($AAA + $CCC = $BBB)
    A straight sale of the property at less than FMV would result in a loss, but gets transformed into a charitable donation due to Statutory (i.e., "Tax") accounting.  This assumes, of course, that you are carrying the cost of the land as an asset in your Quicken accounting.
    If you're not carrying the value of the land in your Quicken accounts then this gets tough to account for in Quicken because you really can't make that entry and you have the complexity of squaring GAAP accounting with Statutory accounting.  In that case you might have to simply reflect the cash received as a sort of "Miscellaneous" income, (income that's not reported in your income tax return), and simply make the "donation" aspect as an entry in your tax return, (an entry that's not recorded in Quicken).
  • Drawdy
    Drawdy Member ✭✭
    edited April 20
    I'm sorry, I bought into a partnership that donated the land. I never owned the land myself, my ownership is in the partnership.

    I paid $50k for my pship share. I'll get a $225k charitable write off on my taxes for the value of donated land. The basis statement increases my basis for the increase in value to the donated amount. There are a few fees that I deduct as well, but I'm thinking if I can keep my partnership account valued at whatever the K-1 basis statement says, I'm good on the balance sheet. It's recording the categories I'm unsure of.

    PS - GAAP is crap. I don't ever use it. :D
  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    Accepted Answer
    How have you accounted for your partnership interest in the past?  I assume your first entry was a debit to a security or other asset for your buy-in?
    Frankly it's almost impossible to account for a complicated partnership in Quicken since partnership Schedule K-1's are almost always prepared on a tax basis with dozens and dozens of possible codes related to special Statutory provisions like "Code X. Section 965(c) deduction" and "Code F. Section 743(b) positive income adjustments" which are pretty meaningless to most people. 
    In your first paragraph you say "...just create an ongoing CE "other asset" account and debit the purchase price to start" and I wasn't sure what that meant, exactly.  I guess you were talking about your share of the partnership's selling price?  Then you wonder about the "other side" of that entry and if you look at what I posted above then the only other place to make that entry is a reduction of your basis in the partnership since that's where the land lives on your books.  But the "debit" (increase in cash) for the sale (purchase price?) of the land also "lives" in your partnership basis as well as the (assumed) loss (contribution?). 
    Very, very broadly speaking your basis in the partnership increases with "income", decreases with "losses", increases when you put in more cash or property and decreases when the partnership makes distributions to you.  If you can keep your basis in line with the Schedule K-1 (assuming your basis is "inside" basis and not "outside" basis) you're doing pretty good and since the Schedule K-1 will handle all the Statutory issues I probably wouldn't struggle to somehow single out the CE within Quicken.
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