Is ground rent tax deductible or a charitable contribution if it is paid to a religious non-profit organization that uses those funds for the benefit of the community?

[ajs42680]

The community is Ocean Grove, NJ, and the ground rent does not go towards tax payments on the land (that is paid directly).  It is a fee levied on all home owners in the neighborhood (community), which is part of the Camp Meeting Association (Ocean Grove Camp Meeting Association) which is a Methodist Camp that uses these funds for benefits of the community - social events, youth events, ministry, etc.   Since this is the case would this not be deductible as a property tax equivalent or as a Charitable Contribution?  

[Carl]

No. That's not a donation any way you look at it. You state "it is a fee levied on all home owners". So there's no way it's a donation of any type, since you are required to pay it.

[DanielV01 · Accepted solution]

It depends if it is deductible.  As Carl states, it is not a donation.  Nor is it a real estate tax as you mention.  However, it can qualify as mortgage interest under certain conditions.  The following excerpt is taken from 

Publication 530 - IRS.gov (click on link for more information): 

Redeemable ground rents. If you make annual or periodic rental payments on a redeemable ground rent, you can deduct the payments as mortgage interest. The ground rent is a redeemable ground rent only if all of the following are true.Ground rent. In some states (such as Maryland), you may buy your home subject to a ground rent. A ground rent is an obligation you assume to pay a fixed amount per year on the property. Under this arrangement, you are leasing (rather than buying) the land on which your home is located.

• Your lease, including renewal periods, is for more than 15 years.
• You can freely assign the lease.
• You have a present or future right (under state or local law) to end the lease and buy the lessor's entire interest in the land by paying a specified amount.
• The lessor's interest in the land is primarily a security interest to protect the rental payments to which he or she is entitled.

Payments made to end the lease and buy the lessor's entire interest in the land aren't redeemable ground rents. You can't deduct them.

Nonredeemable ground rents. Payments on a nonredeemable ground rent aren't mortgage interest. You can deduct them as rent only if they are a business expense or if they are for rental property.

Looking up information on Ocean Grove, NJ, it is unclear if you have a right to purchase (it is a 99-year lease that you may transfer, upon which the lease starts anew).  That could disqualify your particular ground rent, but you can check into the exact local structure to be certain.

[ajs42680]

Yes, its a VERY bizarre arrangement.    The properties are sold on a 99-year perpetual lease as you stated, and the developer that arranges for the creation of the condo building hoa (Leesee) goes into an arrangement with the Camp Meeting Association (Lessor) that they will charge (for Condos only) each unit Owner (sub-Leesee) this "land rent" that is to be collected by the Condo HOA (Leesee) and paid to the Camp Meeting Association (Leesor).     Single family homes in the area pay very small fees and this is mostly historical precedent in nature , $10-$50 per year,  but Condos pay $1,000's in this "land fee"  each year and the amount increases in perpetuity  based on adjustments in the CPI.     

The town is truly Neptune Township, and Ocean Grove is only a historic district within the town.   Each home owner is responsible for paying taxes to the township, and it is recognized as a fee-simple transaction from a legal standpoint, with tax on the property being for "land" and "improvements" directly by each home owner to Neptune Township.     

This "land rent' is in effect not valid, on a fee-simple transaction, as the ownership and costs due are paid for directly by the unit owner (not the Camp Meeting Association, as they waive that responsibility in the transfer of the lease at time of purchase).   This is an additional set of Lease terms, that complicates where these costs should be noted for from a taxable standpoint.      

Basically  you are paying rent to a "Leesor" on property that you already fully redeemed upon the original property purchase.    So is it a district tax (since it is based on sales price of the unit x a multiplier), just like a real estate tax, or is a "fee" to belong to the religious community (like being part of a country club, but in this case it is a private religious community) - making it a form of a charitable donation?     Seems like it should fit somewhere in the tax code.   Just not sure where.   Any additional help would be appreciated.

[DanielV01]

The link I provided in my answer to Publication 530 is the description of the tax treatment as far as the IRS is concerned.  On researching this, it is clear that the whole arrangement is full of legal wrangling; it dates back to the 1860's!  But if it doesn't fit the definition above as "redeemable rents", thus allowing them to be claimed as mortgage interest (which is bizarre I admit), you might want to talk to other residents about whether they have been successful in claiming these on their taxes legally.  No doubt a local CPA knows for certain how the letter of your law there stacks up to the IRS' definition.  Still, I hope you found this information helpful.

[Carl]

If a CPA told me I could claim it as a charitable donation, then I want that CPA to sign an agreement that he will pay for any and all costs I may incur if the IRS audits me and disallows it, to include taxes owed on the disallowed deduction. I seriously doubt there's a CPA on the planet that would sign such an agreement.

[bhansel61]

Hello, I do qualify for redeemable ground rent, however, I cannot figure out how to enter it in TurboTax.  We do not receive a 1098 for the leased land. Any help is appreciated.