Can you claim a charitable deduction for donating a house to a volunteer fire department? The answer is yes, but it’s hard to strucure the transaction in such a way that you can get a big deduction.
The U.S. Tax Court recently ruled against a Wisconsin couple that had claimed a charitable contribution deduction of more than $235,000 for donating a house to a fire department to burn down in training exercises.
The couple had been planning to demolish the house, anyway, and build a new house on the land. The main reason why the Tax Court ruled against the couple is because, in the Court’s eyes, the couple received a benefit from the donation. The benefit being – the free demolition of their house.
The Internal Revenue Code prohibits a taxpayer from taking a deduction if they received a benefit from the donation, unless the dollar amount of the contribution exceeds the dollar amount of the benefit received. In this case, the Tax Court ruled that the house had NO value as a donation to the volunteer fire department, because the underlying land still belonged to the couple, and all the department could do with the house was burn it down.
The Tax Court ruling is precedent-setting.
Like I said in the opening paragraph, donating a house to a fire department may result in a charitable contribution, but generally only if the transaction is structured in such a way that the fire department receives the underlying land and can use the property as it sees fit.
DISCLAIMER: This article does not constitute tax advice and is presented for informational purposes only. Each taxpayer should seek the counsel of a qualified tax advisor to discuss their unique tax situation.
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