Think Twice Before Donating a Vacation Home Stay to Charity!
posted Sep 14, 2017 by Tejal Sanghvi in the Global Tax Blog
Donating a stay in your vacation home to a charity auction? Sounds like a great idea, right? Well, it is, in terms of establishing some goodwill, supporting a charity you believe in, and getting some extra publicity for your property, yes....but in terms of tax deductions, no.
More about vacation stay donations
Many charities including churches and schools will use vacation homestays (from willing donors) as door prizes at dinners, galas and auctions that they sponsor to raise funds for their organizations.
So, no tax deductions available?
No Deduction for Owner
Donating a stay in your vacation home is considered “right to use property” and therefore is considered only a partial interest in the property, therefore you do not get a write-off for it. Unlike cash, you cannot deduct the cost of a stay that you donate to charity, and the IRS is very clear that this is not deductible. They even provide an explicit example involving this exact situation in Publication 526 (page 3).
No Deduction for Guest
On the other side of the equation, the IRS considers the lucky person’s winnings a “benefit equal to the payment” because the guest receives the stay at your vacation home in return for his/her payment in the auction. As such, the lucky winner cannot take a charitable deduction for the payment as they just paid the fair market value of the rent. This is covered in the same example mentioned above-Publication 526.
Collette owns a beach house in Newport that she rents out during July and August. For a fundraising auction at her son’s school, she offers a one week stay at the Newport house. The school receives and accepts a bid of $2,000 from Andy Johnson for the rental of the home for a one week stay. Collette cannot take a deduction due to the partial interest rule (wherein an individual cannot claim a charitable deduction for a contribution less than the interest of the entire asset).
Also, Andy wouldn’t get a deduction both because he paid no more than the fair market value for the rental ($2,000), and all of his charitable contribution is going to his personal benefit.
In fact, the use of vacation home by Andy is deemed to be personal use of vacation rental by Collette for the purposes of Section 280A vacation home rules limiting rental deductions.
Why are partial interests not deductible?
The IRS wants to minimize tax abuse as much as it can. If partial-interest gifts were deductible, the IRS might run into issues where dishonest donors might attempt to give portions of property, and take deductions that add up to a value that exceeds the actual value transferred.
So, while donating a stay at your vacation home is generous and will likely sell fast, keep in mind that you will not be able to gain a tax benefit for doing so.
Consult a member of our Tax Services Team for more info.