Donating a Rental Property to Charity

[Anarchrist]

Where can I find the rules for deducting a contribution of a fully depreciated rental house to a charity? Am I right that the capital gain portion is deductible limited to 30%?

[Bees Knees]

TheTaxBook, page 4-16 explains those rules. The basic concept is you deduct FMV, and then reduce that amount by the portion of gain that would produce ordinary income if the property were sold. For example, if you donate a machine used in your business that is worth $1,000, and it would have produced $900 of ordinary income (depreciation recapture) if it were sold, then your charitable deduction is $100 ($1,000 FMV minus $900 depreciation recapture).

For a rental property, you might have a combination of capital gain, unrecaptured 1250 gain on the building, and depreciation recapture on the appliances. The donation equals FMV minus the amount of gain that would produce ordinary income (the depreciation recapture on the appliances). Unrecaptured 1250 gain is not ordinary income gain. So most of the FMV or the donation of rental property would be allowed as a charitable contribution.

The 50%, 30%, and 20% AGI limits are discussed on page 4-18, and there are a number of factors used to determine which limit applies.

[les grans]

And if there's a mortgage that's going to be taken over by the charity, there are rules about how to compute the charitable deduction as part of the value of the house when it's given "subject to" a mortgage. They're in the regulations, somewhere around section 1.1001....

[Anarchrist]

Thanks guys. That's how I thought it worked but just wasn't sure. I'll double check the 50/30/20 rules to make sure I calculate the limit correctly.

Maybe I should start a new thread, but Bees Knees' reference to the TaxBook made me wonder. I've never used QuickFinders or the TaxBook. I've used CCH's Master Tax Guide as well as CCH or Kleinrock's tax code and analysis. As part of my software I get a copy of Kleinrock's Quick Answers, which is their version of the TaxBook. It seems quite useless to me and I never use it. I'm sure the TaxBook is much better. But how good is it really? Is it that easy to find answers? Are the explanations different than what's in the irs pubs?

[Roland Slugg]

Hello Anarchrist

Each year I get two desk reference books ... CCH's Master Tax Guide and RIA's Federal Tax Handbook ... and prefer the latter. I've never bought a copy of TTB, but from everything I've read here have the impression that it is quite good. For two or three years I received the Kleinrock reference book (included with certain ATX packages) and found it to be utterly useless. Its index is woefully inadequate.

[Bees Knees]

As part of my software I get a copy of Kleinrock's Quick Answers, which is their version of the TaxBook. It seems quite useless to me and I never use it. I'm sure the TaxBook is much better. But how good is it really? Is it that easy to find answers? Are the explanations different than what's in the irs pubs?

TheTaxBook has the best guarantee in the business. The website says use it for the entire tax season, and if you are not satisfied with it, return it by April 15th for a full refund. No other publisher puts that kind of guarantee behind their product. TheTaxBook could not have made it to year number 4 with that kind of guarantee if customers were not satisfied with their purchase.

[Lion]

Helpful

I've found TTB helpful for finding that fast answer, especially when I'm unsure of the terminology. Their topical tabs, index, and various charts, help me find what I'm looking for even when I don't know what it's called. I like their examples. And, if the fast answer isn't enough, TTB gives me chapter and verse of where to look next. This year I bought the CD version also. So, it not only gives me chapter and verse but actually takes me there, too. And, the CD version is always updated (took a long time yesterday); better than all the pages I've printed out for the book version, especially with Congress and its December law changes.