In an effort to raise funds, many charitable organizations ask contributors who own vacation homes to donate the use of their property. The charity then auctions time in the vacation home to the public. Many taxpayers who donate a stay in their vacation home view this donation as a charitable tax deduction. Additionally, the person who wins the bid on the vacation home stay oftentimes believes the price they pay to the charity can be deducted as a charitable donation.
Unfortunately, in this situation, neither individual would be able to take a tax deduction. Pursuant to the IRS, when you contribute the right to use your property, the contribution is less than your entire interest in that property; therefore, it is not deductible. The person who won the auction cannot deduct the amount they paid because they are receiving a benefit equal to the amount of their payment.
For example, Joe Client owns a vacation home at the beach, which he sometimes rents to others. He is approached by his church about a fundraising auction, and decides to donate the right to use his vacation home for one week. The church accepts and receives a bid from Jane that is equal to the fair rental value of the home for one week. Joe cannot claim a deduction for the donation of the rental home for one week because the partial interest rule applies. Jane cannot claim a deduction for the amount she paid to the church because she received a benefit equal to the amount of the payment.
When you are making large charitable contributions, it is important that you verify whether it is a valid charitable deduction. We recommend checking with your tax consultant if you are uncertain about whether a certain type of contribution is deductible. For a contribution to be deductible, it must be made to a qualified organization as approved by the IRS. The IRS has a page on their website where you can search to see if a charity is on their approved list. The list is located at the following address: http://www.irs.gov/app/pub-78/.
If you would like more information on charitable contributions and their potential deductibility, please contact Henssler Financial at 770-429-9166 or [email protected].