Burning down the House

[veritas]

An issue that arose in our recent election was one candidate deducting as a charitable donation a home to the local fire dept.

The republican candidate took a 350k deduction on his return for this very purpose.

Anyhow here is an article from a local weekly:

http://blogs.wweek.com/news/2010/11/05/dudley-house-burning-federal-tax-court-rules-against-wisconsin-man/

[Snaggletooth]

Restricted Use

At the heart of the ruling is the placing of restrictions on what the house could be used for. Apparently the Fire Department was given the home for purposes of setting it afire for training purposes.

What if the taxpayer had given the house to the Fire Department to use as they saw fit with no restrictions on its use? And then they decided to burn it anyway.

[BOB W]

I think a change of title would have to take place for a full charitable deduction to take place, including the land, AND there needs to be a statement that the fire dept was going to use the property for their everyday functions without any intent to sell the property.

[Bees Knees]

I think a change of title would have to take place for a full charitable deduction to take place, including the land, AND there needs to be a statement that the fire dept was going to use the property for their everyday functions without any intent to sell the property.

I don’t think a change of title to the land needs to take place. It’s basically no different than giving a chair in your house to the Salvation Army and having them come out and pick it up. If you give your house to the fire department and let them do what they want with it with no strings attached, and you have no right to its use after the donation, it’s a donation, even if they burn it down while it is still on your property. A transfer of title to the house and not the land could take place in the form of a signed contract that basically says they get ownership of the house while you retain title to the land. It isn’t the same as temporary use of your property by a charity, which is not a charitable donation, because you don’t get the house back after they are through using it.

In the case cited, the reasons why it was not a charitable donation are (1) the homeowner placed restrictions on how the charity could use the donation, and (2) the charity actually provided a service to the homeowner in exchange for the donation (that of demolishing it for the homeowner) and the FMV of the service exceeded the FMV of the house donated (the house had no value and needed to be demolished).

[gkaiseril]

Also the fact that entire property was not donated and the lake house has been shown to be of no value since there was no market for just the house.

[BOB W]

I think a change of title would have to take place for a full charitable deduction to take place, including the land, AND there needs to be a statement that the fire dept was going to use the property for their everyday functions without any intent to sell the property.

All I was saying was in order to get a full charitable deduction for the AMOUNT the T/P claimed he would have to TRANSFER title of all, house and land, with no strings attached.

[Snaggletoof]

Tax Planning/Advice

It would appear the taxpayer might have been well-advised to simply give the house to the fire department with no strings attached. Even if he knew they were going to burn it.

Other factors enter that are perhaps specific to his situation, such as the increased value of his own property after demolition, and probable dilapidated condition of the structure to begin with.

However, when advising clients, make SURE they know what happens to their deduction if they place restrictions on its use.

[FEDUKE404]

References of note

"Lake Oswego Fire Chief Ed Wilson says 13 firefighters got training at the Dudley burn. So multiplying the 13 times $245 for three days yields a value of $9,555. That’s only one rough measure of what the house was worth to the department—which was allowed temporary use for a specific purpose, not the opportunity to inhabit or sell the structure or use or sell the land surrounding it...." :

http://blogs.wweek.com/news/2010/10/06/read-the-document-chris-dudleys-2004-house-appraisal/

"Basically, the court disallowed the deduction for the gift." :

http://www.associatedcontent.com/article/5976682/tax_court_torches_charitable_deduction.html?cat=3

"Pre-donation estimates and a post-destruction building contract indicated the demolition was worth about $10,000, while the value of the residence was de minimis." :

http://tax.somersetblogs.com/2010/11/04/indiana-tax-court-disallows-charitable-contribution-of-home-to-fire-department/

Similar cases:

http://taxprof.typepad.com/taxprof_blog/2010/07/district-court.html

and

http://taxprof.typepad.com/taxprof_blog/2009/07/irs-burns-kirk-herbstreit-donation-.html

FE

[JON]

Somebody has to look this

up, but there was a huge case already. It was a former quarterback(was it Herbstreet??) and he lost. Burning down the old to build the new. It has been to court and appealed I think he lost originally and was deciding rather to keep appealing.

It you give use of your condo for a charity auction, how much of a writeoff does the owner get??? $00000000

[Kram BergGold]

Covered this issue

This issue has already been discussed on this Board I think. My recollection is no deduction is allowed.