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In a case dealing with a charitable contribution for a façade easement, the Tax Court ruled that the gift did not result in a charitable contribution deduction because a bank held a mortgage on the underlying property.

The easement involved a single-family rowhouse located in a historic preservation district in Boston. Gordon and Lorna Kaufman entered into a preservation restriction agreement with the National Architectural Trust under which they granted the trust a facade easement restricting the use of the property.

Normally, no deduction is available for a charitable contribution of less than your entire interest in a property. However, an exception is made for a qualified conservation contribution. The interest in property conveyed by a façade easement must be protected in perpetuity for the contribution of the easement to be a qualified conservation contribution.

In this case, a bank held a mortgage on the Kaufman property. If the building was destroyed, the bank was entitled to the condemnation proceeds until the mortgage was satisfied and discharged. The court determined that the trust's right to a proportionate share of future proceeds was not guaranteed. As a result, the court held that the façade easement contribution was not protected in perpetuity and thus was not a qualified conservation contribution. (Kaufman v. Commissioner, 136 TC 13, April 4, 2011).

 
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