Question for you non profits tax pros

[AZ-Tax]

An owner of a building is considering donating part of his building space to a non profit for them to store items. The building owner states market rate rent on that particular space is $1000/mo. Would the building owner be able to deduct $1000 as a donation on his tax return and if so deductible would it matter if it was a C-Corp, S-Corp or 1065 (partnership) tax return?

[JohnH]

No deduction for the FMV of the foregone rent.

This is no different from the situation in which a restaurant owner cannot deduct the value of food he throws away.

[appelman]

No deduction for the FMV of the foregone rent.

JohnH is correct. No deduction for the rent. But I would think he could deduct his prorated expenses incurred for the donated portion of the building, unless the non-profit is assuming those expenses.

[JON]

The value of

food thrown away????? If your in the business and you purchase food it goes to inventory then out if used or thrown away??? I am missing something on that comment. The only thing remaining in inventory is what is counted everything else, including thrown away, is expensed.

As to C versus S differences there is a difference in the contribution of "inventory items". If a C corp donates inventory items you get a 50% of mark up deduction as contribution. Calculate as 50% of the markup. S corp or 1040 (schedule C) do not get that.

[RitaB]

I get it

He means you don't deduct the food you throw out at the price you COULD have charged.

Like my gals at the beauty shop who wanna deduct the price they didn't charge for the do over. I keep tellin em, you just deduct what YOU actually paid. Not what you shoulda, coulda, woulda got.

Once they get that, they just wanna deduct the value of their own labor. I kill that vision for them as well.

Well, until next year, and we go over it all again. =)

[appelman]

I don't get it!

Am I missing something? What do food or inventory have to do with this topic?

[JohnH]

Maybe I muddied the water by bringing in the food analogy, but it's the one that comes up all the time. Common sense tells the non-accountant business person that throwing away an income-producing opportunity generates a deduction, but their common sense is wrong.

I was just pointing out that foregone income is already deducted, whether it's potential profit on discarded food or potential rent on discarded interest, utilities, and building depreciation. No matter whether it's cash paid for inventory that disappears without any income produced, or cash paid for operating expenses without any income produced, the principle is the same.

[appelman]

Deduction of expenses for building loaned to non-profit

I guess I'm not convinced. Imagine your client loaned out the whole building to the non-profit, on condition that they would assume all expenses. He would not realize taxable income. Therefore, if, instead, he pays the expenses himself, this is a payment on behalf of the non-profit and should be deductible. Convince me if I'm wrong!

[S T]

Would It Be Possible

Might the Taxpayer be able to sign a lease agreement with the Charitable Organization for the FMV and have the Charitable Organization pay the Lease Amount - that would be reported on Schedule E as income, and all associated expenses to the property should be deductible.

Then might the taxpayer write a check back to the Charitable Organization as a donation, and the taxpayer would report that on Schedule A, providing that the Charitable Organization provide the proper annual Donation Statement.

I stated as if an indivudual, and Not sure about the portion of the question that relates to entity form, so that should be further reviewed.

Sandy

[appelman]

Would It Be Possible

It might be disallowed as not a bona fide rental. After all, in that case you would be deducting depreciation, which would not be deductible on a charitable contribution (since it requires business or investment use). As a "thought experiment," however, it helps to convince me that my approach is correct.

[JohnH]

I guess I'm not convinced. Imagine your client loaned out the whole building to the non-profit, on condition that they would assume all expenses. He would not realize taxable income. Therefore, if, instead, he pays the expenses himself, this is a payment on behalf of the non-profit and should be deductible. Convince me if I'm wrong!

If he loaned the building to the non-profit on the condition that they would assume all expenses, he has no income to report and no deduction.

If he pays the expenses himself, he has no income to report but he has a deduction because he paid out the expenses. The deduction arises from the fact that he's out the money he paid for the expenses. (Assuming the non-profit is a qualified charity).

The question becomes whether the out-of-pocket expenses applicable to the donated space are to be claimed against total rental income or broken out as a deductible contribution. Is that what you mean?

[appelman]

I think we're basically in agreement

I think we're basically in agreement. The original post didn't say that this was actually rental property -- only that if the space were rented, it would bring in 1K/month rent. But I don't think that really matters. If it is loaned to the non-profit, it obviously isn't being rented.

[Davc]

If he loaned the building to the non-profit on the condition that they would assume all expenses, he has no income to report and no deduction.

If he pays the expenses himself, he has no income to report but he has a deduction because he paid out the expenses. The deduction arises from the fact that he's out the money he paid for the expenses. (Assuming the non-profit is a qualified charity).

If they assumed indirect expenses such as property taxes and routine maintenance, then he would have income. Only directly attributable expenses would qualify for a charitable contribution. See page 5 of Pub 526 under car expenses for an example.

[JohnH]

Great point. Interesting how a seemingly straightforward situation can take all these twists & turns. Sure is a good thing that people have Turbo Tax to figure this stuff out and not have to waste their time & money with us, isn't it?

[appelman]

It is a good point but...

It is a good point but I'm still not quite convinced that it is a valid analogy. What is the real estate equivalent of "gas and oil?" (I have to admit that my head is beginning to hurt!)