February 17, 2017

Non-deductibility of Charitable Use of One's Property

Question: 

A church member is allowing one of its missionaries to live in one of her rental properties for a year. Is she able to get a tax deduction for this generous act? If so, what is the church's responsibility to the church member who is providing the free rental?

Answer: 

This donor would not be able to deduct the expenses in this situation because of the partial interest rule. According to IRS Publication 526, "Partial Interest in Property Generally, you can't deduct a charitable contribution of less than your entire interest in property. A contribution of the right to use property is a contribution of less than your entire interest in that property and isn't deductible. Example 1. You own a 10 story office building and donate rent free use of the top floor to a charitable organization. Because you still own the building, you have contributed a partial interest in the property and can't take a deduction for the contribution."
Hence, the church has no responsibility in this case with regard to a charitable contribution. However, a thoughtful thank you, of course, should be extended for this unselfish act.

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