Donation?

[TAX]

Client (MFJ) purchased a church bldg for $200,000 on 01/01/06.
Land = $65,000 and Bldg = $135,000

Their purpose was to help church. They will demolish the building and then make a new commercial building in 2007.

(1) Can they deduct $135,000 as charity donation to church on 2006 return?

Logic: Client got only Land ($65,000) in return for the purchase price ($200,000) paid. Yes, Client did got building but it was worthless - so it is like getting nothing. Client will demolish building in 2007. Building was not Rentable.

(2) Do I need letter from Church about this donation? Do I need to attached to return?

(3) Do I need report from appraisal saying that building value was zero at the time of purchase?

Thank you!

[taxmandan]

The building was either worth $135K or it was worthless, which is it? You state both. If the appraisal says the building was worthless at the time of purchase, then all $$ paid was for the land, regardless of what was put in the sale contract. I don't see a charitable contribution for the $135k.

[BOB W]

Seems to me your client should of structured the purchase differently. Just buy the land/building for $65,000 and then donate the $135,000 to the church, it would of made this deal clean.

Other than that, the deal doesn't look like a contribution any-which-way as it was closed on. MFJ client has a $200,000 cost basis plus the demolition and rebuild.

But that is just my opinion........................

If you try to take a charitable deduction it is sure to be audited, so be sure of what you are doing.

[joanmcq]

of course, then you could get into the 'bargain purchase' rules. This looks like a good case of do first and then ask us to fix it later...

[JohnH]

Just curious

By any chance were any of the parties to this sale & purchase related in any way? If so, then the burden of proof may go sky high.

[Luis Mopeo]

I have the same kind of questions. Certainly you can take a donation for the difference if you make a donation and get something of lesser value in return. But "purchased a church building" doesn't sound like a donation.

It seems strange that nobody on either side of this transaction worried about structuring it in a way to lock in the donation before it happened. It seems more like a transaction occurred, then the potential charitable deduction was thought about after the fact. It doesn't make sense.

Also, and I'm getting out of my league here, but isn't real estate a different bird than anything else when it comes to buying and selling? Was the transaction recorded down at the county building as a purchase of a building for $135,000? Sales records for real estate are historical documents. Was that listed as FMV?

There's something missing here.

[ChEAr$]

I have the same kind of questions. Certainly you can take a donation for the difference if you make a donation and get something of lesser value in return. But "purchased a church building" doesn't sound like a donation.

It seems strange that nobody on either side of this transaction worried about structuring it in a way to lock in the donation before it happened. It seems more like a transaction occurred, then the potential charitable deduction was thought about after the fact. It doesn't make sense.

Also, and I'm getting out of my league here, but isn't real estate a different bird than anything else when it comes to buying and selling? Was the transaction recorded down at the county building as a purchase of a building for $135,000? Sales records for real estate are historical documents. Was that listed as FMV?

There's something missing here.

Typically (around here at least) the final purchase price is not recorded at the court
house. Only the deed is recorded, thus no "historical" record there.

Anyway, assuming arm's length sale (no related parties as mentioned elsewhere),
then the basis of the land will be 200,000$ plus cost of demolition.

Then he can do whatever he wants to, i.e. build a commercial building thereon.