Scenario: A church has determined that additional space is needed for a satellite location. A warehouse has been located, however significant renovations will be needed. A private individual (taxpayer) is willing to purchase the land and building and the church will finance the renovations. The church will rent the facility for three years and the rent will be $1 per year. In three years the taxpayer would donate the property to the church and receive a charitable deduction.
Question: Does the donor receive a deduction for the appraised value of the donated property?
Answer: The IRS has ruled in a technical advice memorandum (9639009 dated 9/27/96) that a donor may not take a charitable contribution deduction equal to the full fair market value of real property leased to and renovated by a charity and later donated to the charity. The taxpayer’s deduction is limited to the fair market value of the property at the time of the donation excluding the renovations. The taxpayer never owned the renovations for tax purposes.
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