Question from my pastor: Our church is getting ready to purchase some land next to the church to expand the parking lot. Vacant land, no buildings. Man who owns it has owned it for years and it's just sat there empty. Question is if the owner sells the property to the church for below market value can he get a tax write off as a contribution for the amount land is valued at minus the amount church pays for it?
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Here's a general, non-technical discussion of the issue.Originally posted by Bonnie View Post
Might be a good starting point.
Pub 526 also provides more info on pages 11-13, although it takes a fairly straightforward question and complicates it immensely. One key question seems to be whether the FMV of the property significantly exceeds the cost basis. There are also complications if the property is subject to a mortgage.Last edited by JohnH; 10-14-2016, 08:33 AM."The only function of economic forecasting is to make astrology look respectful" - John Kenneth Galbraith -
I would make sure there is a written contract for sale/purchase between the two parties, and the intention to have the sale qualify for charitable contribution treatment of the difference in FMV and sale price is specified; and an appraisal to establish what that FMV actually is.Comment
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Yes or No Answer
None of my esteemed colleagues have given Bonnie a straight up "Yes" or "No" answer. As is so often the case here, a plain English question is answered with a link to Code/Regs/Pubs where the querer may wade through pages and pages of stilted language. The querer might have wanted to avoid all this by bringing the question to the board instead of reading through all the mumbo-jumbo.
OK, after this hostile dialogue, I'm not going to give Bonnie a straight up Yes or No either.
One issue that hasn't been brought up is the owner's basis in the property. If he "sells" it to the church, would he have a gain or a loss? If he had a loss, he could be better off just reporting it if the church is not a "related party." If he has a GAIN at the reduced FMV, then I see two transactions:
Report the gain, calculated at the reduced value over the owner's basis. Then deduct the difference between FMV and selling price as a charitable contribution. This would be a donation of property and subject to the stringent reporting requirements for property over the threshold and a competent appraisal, as Burke has suggested.
A larger deduction can probably be had if the property were donated outright, but the stringent reporting requirements would still be required. And of course the owner would not walk away with any cash.
Kind regards to John H and Burke...who actually DID provide good responses...Comment
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Fmv
How high is the wall to get an accurate FMV of the property to be donated/sold ??
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It would not be a problem to get an appraisal. Not sure about gain or loss on the property as I do not do tax returns for the individual who owns the property. And yes, of course the church would love for him to donate it outright for bigger write off. That's actually what we are believing for in the end. Since I do not know the owner's financial situation or tax situation I cannot advise on how he should handle this. I did advise he should talk to his tax preparer. I know the individual owner, but not well. Would work with him if he asked me but not volunteering to get involved in that respect. Just trying to answer questions for my pastor about what the church would need to do if this happens.Comment
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Just a FWIW here. I had a client this year who donated an empty building lot valued at $12,000 to Habitat for Humainty. The client had obtained a certified appraisal ( about 6 or 8 pages long) just prior to donation. They paid $400 for the appraisal. Your mileage may vary...Originally posted by Bonnie View Post"The only function of economic forecasting is to make astrology look respectful" - John Kenneth GalbraithComment
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Bargain sale -Comment
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Publication 544: "Bargain sales to charity. A bargain sale of property to a charitable organization is partly a sale or exchange and partly a charitable contribution."
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For appreciated property a "bargain" sale produces a better tax result for the donor than he would get if he sold the property at its FMV then donated cash to the church in an amount equal to the "bargain" element of the selling price if sold to the church. That's because the LTCG on the "bargain" portion of the sale is not recognized for tax purposes.
Here's an example: Land, FMV $20,000, basis $9,000, sold to church for $12,000 ... an "bargain" or discount of $8,000.
If sold outright then $8,000 cash contributed to the church ...
(A) LTCG of $11,000 ($20,000 less $9,000)
(B) Cash charitable contribution of $8,000
(C) Net increase in taxable income (A) minus (B) = $3,000
If sold to the church for $12,000 ...
(D) LTCG of $6,600 ($12,000 less $5,400) (The $5,400 allocated basis = $9,000 x $12,000 / $20,000)
(E) Non-cash charitable contribution of $8,000
(F) Net decrease in taxable income (D) minus (E) = ($1,400)
The $4,400 reduction in taxable income is equal to the LTCG on the bargain element that does not get recognized on the transaction.
The result is exactly the same as if the taxpayer owned two assets, sold one and gave the other to the church.
See Code §1011(b) and Regs §1.1011-2 and §1.170A-4(c).Roland Slugg
"I do what I can."Comment
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