Donated vacant house for fire/burn training purposes - can we deduct an appropriate amount as a donation for use of training fire personnel?

[biblelady]

We donated a vacant house for fire/burn training purposes.  Can we deduct an appropriate amount as a donation for use of fire personnel to train? 

Several fire departments participated over 8 weeks time.  I'm thinking about 400 man hours of training use.  If they had to pay for the use of a structure for training, I believe it might cost $50 per man hour.  Is this acceptable?

[Opus 17]

Sorry, no.  As with any other charitable contribution, you can not deduct the amount of money you might have saved the organization, you can only deduct the fair market value of the property that was donated.

Some special rules apply to real estate and whether it was used previously for business or rental.  If this was personal property and it was worth less than you originally paid for it, you can only deduct its fair market value at the time of the donation.  If it was worth more than what you paid (although this seems unlikely under the circumstances), and you held it longer than one year, you can claim the fair market value. If you held it less than one year, you can claim the amount you paid.

If this was income-producing property and you previously claimed depreciation on it, you can only claim the remaining (residual or non-depreciated) basis in the property, regardless of how long you owned it.

Also remember that in all cases, the value of the land is separate from the value of the structure.  If you kept ownership of the land, then you can only deduct the value of the structure.  If you also donated the land, then you need to figure the value of the structure and the value of the land separately.  The value of the structure is determined according to the rules I mentioned above.  The value of the land is either what you paid for it (if you held it less than a year) or the current fair market value (if you held it more than a year).  The value of the land is not affected by any prior depreciation since land does not depreciate.

[bwa]

I agree with Opus - While there has been some controversy in the past over this type deduction, the US Tax Court (in, fore example, Patel, 138 T.C. No. 23 (2012)) has pretty much cleared that there is no deduction allowed.  Several reasons include that the owner had a benefit (getting rid of an unwanted building) and that the donation was not the contribution of a full interest, as the owner retained the land.

[Opus 17]

Interesting -- in that case the ruling was no deduction at all was allowed.  That goes farther than my answer.  Although the tax court was severely split (9-8) so it might end up being reviewed again.

I think the maximum deduction would be the FMV or basis of the structure, certainly not the value of the training exercise.  And if the taxpayer received a benefit (i.e. the land was cleared off so they could rebuild something better) then there might be no deduction allowed at all.

See here for more on this case,
<a rel="nofollow" target="_blank" href="http://taxprof.typepad.com/taxprof_blog/2012/06/tax-court-.html">http://taxprof.typepad.com/taxprof_...>

<a rel="nofollow" target="_blank" href="http://www.ustaxcourt.gov/inophistoric/pateldivision.tc.wpd.pdf">http://www.ustaxcourt.gov/inophisto...>

[Opus 17]

A further point on determining the value of the donation (if it is allowed at all).  The Dissent in the Patel case makes what I think is a good argument that the deduction should be allowed, but that the value of the deduction would be the value of the donated structure MINUS the cost of having it demolished by other means.

[bwa]

One point in the Patel case is the opening paragraph where it is stated as a fact that the property was purchased "with the intention to demolish" the structure.  Under Generally Accepted Accounting Principles (and presumably also tax accounting) that would allocate $0 costs to the building, giving nothing to claim as a deduction.  However, I'm more swayed by the donation of a less than full interest argument.

There are several cases on this issue prior to Patel and, as you note, I doubt Patel is the definitive answer as such contributions can be substantial.  In Patel, it was $339,000 before limitation, making it worth a Tax Court fight to try to sustain them.

[biblelady]

Just wanted to add some detail to my question above.

First, we purchased the property hoping to rehab it and rent it out.  So, we did file and pay the required fees at closing to change the house to rental space.  

I'm also not trying to claim the full price of the building.  My charitable deduction would only amount to $7,000 to $10,000.  (The house itself was probably only worth $90,000 to $100,000.)  But your answer  made it seem that I can't claim a donation that is not cash or material.  Couldn't this be a donated service - allowing them to use the structure over and over again for training?

Also, the value of their taking the house down is minimal.  We had to do all the preliminary work of striping the building of everything - and I mean everything - that was recyclable.   And after the burn, we needed an excavator to clear all the debris and a special service to haul it all away to a proper disposal area.  If they hadn't used the house for training, we would have knocked it down our selves. 

It was a lot of work - but we had a lot of fun watching and working with all the fire departments.   Thanks for the opinions.  Very helpful!

[TaxGuyBill]

The value of services is not deductible, either services by you or by allowing others to use the property.
<a rel="nofollow" target="_blank" href="https://www.irs.gov/publications/p526/ar02.html#en_US_2014_publink1000229698">https://www.irs.gov/pu...>

[Opus 17]

Except for cars, boats, and airplanes (which are covered under a special rule), the value of a donation is never determined by the amount of benefit the charity gets, but is the fair market value of the property. Generally, that means what you could get for it if you sold it to a stranger at a thrift store, garage sale or auction.  The amount of benefit does not enter into it -- for example, in my city, Goodwill automatically recycles any computer older than a certain date because it is too much trouble to figure out if it works, clean it up, etc.  A computer that you could sell for $100 on Craigslist is worth nothing to Goodwill but you still get a market value deduction.  Or, imagine the chaos when you donate clothes, and then you got a letter a year later saying "no one bought your clothes so we sold them to a textile recycler for 25 cents a pound."  But the donation is the fair market value of the items no matter how the charity uses them.

Also, please read the other answers and comments carefully -- the Patel case is the law of the land for now, and that says that donation of a structure to a VFD for training is never deductible.  The reasoning is that you only loan them the use of your property, and you can't donate the value of the temporary use of property.  There may be room to challenge the ruling, but that would require claiming the deduction, getting audited, and going to tax court.

Finally, also be aware that any non-cash donation of more than $5000 requires an appraisal, and the filing of a special tax form signed by the appraiser and by the donee organization.  So if you do decide to claim the donation you will need a written appraisal of the structure before the burn, to prove the value of the donation that you claim.  And it won't be enough to say that the amount you saved on demolition costs is negligible.  You have to prove it.  The IRS will likely say that, no matter how much you had to pay for site prep and demolition after the burn, you would have had to pay more for demolition without the burn.  You can't rebut that with your say-so, you would need some kind of documentation.