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In-Kind donations: how to handle tax?

MrSQL's picture

Hello,


I have donated the use of a residence to a charitable organization.  This is called an in-kind donation because it has some value, but no money changed hands.


Has anyone done personal tax preparation that factors in "in-kind" donations as a deduction? 


Thanks,


Roger <><


 


 

(post #119545, reply #1 of 57)

It's the same as a deduction for giving stuff to the Salvation Army.  Helps a lot if you have a receipt with the "market value", otherwise you need to somehow justify the assigned valuation.  Instruction are in the standard 1040 instruction booklet, I believe.


Be sure to document well how you arrive at the value, even though you don't send in that documentation.



If your view never changes you're following the wrong leader


Of all the preposterous assumptions of humanity over humanity, nothing exceeds most of the criticisms made on the habits of the poor by the well-housed, well-warmed, and well-fed.  --Herman Melville

(post #119545, reply #2 of 57)

There is going to be LOTS details that need to be handled on something like this.

Qualified organizations, certified aprasil, maximum deductions or a few of them.

And if this property was used for investment or business purposes before donating or the past there might be some other tax complications. Not usre.

Start here with pub's 526, 8283, and 561.

http://www.irs.gov/formspubs/article/0,,id=98327,00.html

And you will probably want a tax pro to handle this.

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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.


Edited 2/4/2008 2:36 pm by BillHartmann

. William the Geezer, the sequel to Billy the Kid - Shoe

(post #119545, reply #3 of 57)

"I have donated the use of a residence to a charitable organization."

Are you donating the property?

Or only leasing it to them?

.
.
A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
. William the Geezer, the sequel to Billy the Kid - Shoe

(post #119545, reply #4 of 57)

Basically you are going to need to be able to defend the value of the donation.  FOr this purpose you should see what a "LIKE" property can be rented for in your area.  Then I suppose you would be able to factor in utility cost if the "LIKE" properties did not include utilities.

.

(post #119545, reply #5 of 57)

Once you do the calculations you might also present it to the organization and ask that they prepare a reciept for that amount for you.  In the end you would still need to personally defend your calculation, but having the charity agree with you would not hurt your case in the event of an audit or IRS challenge.

.

(post #119545, reply #7 of 57)

Charities can't (or won't) give evaluations.

Too much of a chance for the donor and the charity to work together to up the value.

For small items the donor can do their own.

But for higher valued items it needs a certified apprasail.

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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
. William the Geezer, the sequel to Billy the Kid - Shoe

(post #119545, reply #8 of 57)

So many people on these boards have reading disabilities. 


I never said a charity "would give evaluations".  What I clearly said was that YOU HAD TO DO YOUR HOMEWORK on COMPERABLE VALUES.  THen you MIGHT ASK the charity for a receipt for that value.  They may or may not provide one.  The IRS may or may not be interested at all in the paper.  However, I have done this, been through a audit, and had it go both ways.  One time they look at the reciept and moved on other times they were much more moved by client's Want-Ad listing showing area rental prices.


The reicpt is a simple request.

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(post #119545, reply #6 of 57)

Bill's right, there's a lot of issues in this.


But as a rule of thumb - whenever I've been involved in similar things - the donee gives a market value hisself.  If your condo on the beech rents for 500 a nite (probably want some transactions to verify this amount), the charity lists that value on their bid card.  It is only a reference point for bidding. 


Should the final bidder pay more than that number YOU provide, he gets a tax deduction for that premium, you get a deduction for your provided number.  Should he pay less, you still get your original number as your deduction.  So's the buyer needs to know your number, too.


 

(post #119545, reply #9 of 57)

You donated time. No money or property changed hands. It's not deductable.

(post #119545, reply #10 of 57)

No, he donated the use of a residnece.  Now if the property is not typically rented, the IRS likely would balk.  Clearly, if the property is periodically rented and he gave away a weeks stay to charity, then he can deducted it.  If the property has never been rented and the owner no longer uses the property and could therefore rent the property and he is granting usage to a charity for their staff on an extended basis he could deduct it.  But if he no longer uses the property and just allowed usage for a week, then he might not be able to deduct it.


Clear as mud?  Well welcome to the IRS.


The situations I have worked with were vacation properties, which clinets, auctioned off for charity.  In this case since the owner, did scarfice one weeks paid rent for the charity they could deduct it.

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(post #119545, reply #11 of 57)

Lets say you rent out a property for $1000.00 / week and pay $250 of that in taxes on the income. If you didn't rent it for a week but donated it for a week you don't pay the $250 tax. Of course if you'd like to send in the tax then ask for it back you can, but since no actual money or property changed hands it would be a waste of time and giving IRS you money to hold is never a good idea.


 


Your deduction is limited to not having to pay the tax on the rental income you would have normally recieved. If you want to show it as a deduction you must also show it as income.... accounting 101. Anyway you cut it it's a wash transaction and not deductable.


Edited 2/4/2008 6:35 pm ET by sledgehammer


Edited 2/4/2008 6:53 pm ET by sledgehammer

(post #119545, reply #12 of 57)

sledge, could be wrong, but I beleive you are dead wrong.  If you are able to rent a property for $1000 and you don't rent it because you gave the space away your economic loss is $1000, therefore the deduction is $1000, not your $250.  You don't ahve to claim the $1000 as income, because as you say no money was recieved, that is obvious.  I guess it is pretty silly to ask for tax advice on a construction web site.

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(post #119545, reply #13 of 57)

he id dead wrong.

(post #119545, reply #14 of 57)

Perhaps I can make it clearer. If he had donated the money he received from a rental to a charity as cash, the entire amount would be deductable off his annual income, reducing his taxable income. Since he had no income he has no deduction.  It is a difficult concept.... I donate alot of time every year to charity because I want to not for a tax advantage. It makes me feel good.


 


Edited 2/4/2008 7:30 pm ET by sledgehammer

(post #119545, reply #15 of 57)

Let me try this another way using round numbers.


I make $2,000.00 / week I donate 2 weeks a year to charity resulting in $100,000.00 in income anually. I cannot further deduct $4,000.00 reducing my taxable income to $96,000.00.


Had I worked all 52 weeks collecting $104,000.00 and donated $4,000.00 cash to charity my taxable income is still $100,000.00. So weather I worked it for income or donated it, the taxable amount is still the same.


This make my brain hurt.


 


 


Edited 2/4/2008 7:49 pm ET by sledgehammer

(post #119545, reply #17 of 57)

FORGET the labor, it anit the same thing!  The IRS does not give a flip how much you work at no charge.  That is your problem.

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(post #119545, reply #19 of 57)

"So weather I worked it for income or donated it, the taxable amount is still the same."

Not true.

If you reported the income then there would SS or SE taxes on it.

And there is also the problem with standard deductions and the limits on amount of charitable donations.

You are better off directly donating the time rather than collecting "income" and they donating the cash.

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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
. William the Geezer, the sequel to Billy the Kid - Shoe

(post #119545, reply #24 of 57)

You can't take an in-kind deduction for your time.  Yeah, you can do the arithmetic to show that it makes as much sense as any other in-kind deduction, but the tax rules specifically prohibit it.


If your view never changes you're following the wrong leader


Of all the preposterous assumptions of humanity over humanity, nothing exceeds most of the criticisms made on the habits of the poor by the well-housed, well-warmed, and well-fed.  --Herman Melville

(post #119545, reply #25 of 57)

Hate to stop this flow of advice but wouldn't it be better to have the OP clarify the circumstances of the donation?

He may well be donating an entire house for a year to be used a shelter for the homeless, drug rehab, or battered person shelter.

OP's post:

From: MrSQL 9:51 am
To: ALL (1 of 25)
100479.1

Hello,

I have donated the use of a residence to a charitable organization. This is called an in-kind donation because it has some value, but no money changed hands.

Has anyone done personal tax preparation that factors in "in-kind" donations as a deduction?

Thanks,

Roger <><

Options Reply


They can't get your Goat if you don't tell them where it is hidden.

Life is Good

(post #119545, reply #16 of 57)

sledge you are correct that you CAN NOT donate time and deduct it.  Donating the use of property is not the same at all and is NOT Dependent on an exchange of cash only the loss of POTENTIAL income.  Sure if you donate time you have a loss of potential income becuase you could ahve spent that time, if you are an independent contractor, with paying clinets, but the IRS says you can't. 


Lost rental income is deductible.  BUt even here you have to prove that it is lost.  Just becasue you have a house and let someone use it is not enough.  You must ahve a history of renting it out so you can prove that you have lost that rental income.

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(post #119545, reply #18 of 57)

I need your accountant... but I'm not sure I could afford him. Deducting income never made must have been taught in classes my CPA missed.

(post #119545, reply #20 of 57)

You can't donate something that you don't have.

If you rented it then you would have that amount as income.

If you don't rent it then you have that much less income that is reported.

.
.
A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.
. William the Geezer, the sequel to Billy the Kid - Shoe

(post #119545, reply #22 of 57)

It's a difficult concept. 


Many don't understand it.


I hope you cleared it up.


 


 


But I doubt it. ;)

(post #119545, reply #26 of 57)

You're right on the money.  You can only deduct what you paid out of pocket.  If you paid for food, utilities etc, you can deduct them.  But not for rent not received.

You get out of life what you put into it......minus taxes.


Marv

You get out of life what you put into it......minus taxes.

Marv

(post #119545, reply #27 of 57)

Here's the question I get a lot.  My crew repaired a roof for a church.  I would have charged them $5,000 to do it.  How much of a donation can I take?


Answer: You get to deduct materials you paid for and labor you paid for but nothing more.


You get out of life what you put into it......minus taxes.


Marv

You get out of life what you put into it......minus taxes.

Marv

(post #119545, reply #28 of 57)

And milage. And for a CHARITABLE milage is at a much lower rate than business usage. Basically to only cover out of pocket expenses, gas and oil, and not depreciation and insurance.

But this does bring up another point.

My understanding is that a business can not make a DONATION and can only deduct ordinary and necessary business expenses.

Now advertising can be deducted. And somethign like this could be treated as advertising if a) it is publized and b) it is not out of proportion to the business income c) in a line work that you are wanting.

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A-holes. Hey every group has to have one. And I have been elected to be the one. I should make that my tagline.


Edited 2/5/2008 10:09 am by BillHartmann

. William the Geezer, the sequel to Billy the Kid - Shoe

(post #119545, reply #29 of 57)

My understanding is that a business can not make a DONATION


On a sch C that is true.  But many people recharterize them as advertising or sales promotion if it is a true business expense. On a C corporation tax, donations are deductible to 10% of your income and the remainder is carried forward.  On a S Corp tax, the donations are passed thru to the shareholders.



You get out of life what you put into it......minus taxes.


Marv


Edited 2/5/2008 11:19 am by Marv

You get out of life what you put into it......minus taxes.

Marv

(post #119545, reply #30 of 57)

The donation is as follows.  I have a log cabin on 100 ac. and a 5 ac. lake, that I moved out of about a year and a half ago.  About a year ago I donated the use of the cabin as living quarters for the pastor of a church (pastor of the church I attend).  The cabin was never rented, but similar cabins on a lake around here go for the $800/month range (researched this through local property managers).  I wanted to see if I could deduct $500/month as an in-kind donation.


I'm still own and am maintaining the cabin much the same as if I were renting it out (e.g. the water heater died and I had it replaced; I change out the water filters,  ...).  When the pastor leaves, then I can rent out, use it as a vacation place for friends and  family, or just let it sit empty ... as I please.


We are in contact with a pro- tax preparer to see if we can get some help.  I'll look at some of the IRS forms and publications suggested.


Thanks all,


Roger


 

(post #119545, reply #31 of 57)

Thanks for the clarification as to the circumstances.

Personal deduction , not business and use for the entire year.


They can't get your Goat if you don't tell them where it is hidden.

Life is Good

(post #119545, reply #32 of 57)

Rent the cabin to the church for $500 / month then donate the $500 back to the church every month.