Question for tax/investment experts

[golfgal]

Semi-hypothetical question, if we were to donate our house to our church, what/how could we write that off on our taxes? Our house value is about $250,000.


I posted this on the Community board too but it was suggested that I post here as well. What we were sort of thinking about was that if we could donate the house to the church and get a large enough tax write off on our taxes to cover the down payment on our new house, we would go that route as our church is looking for a new house for the priests and our house would meet their needs very nicely.

 

[katied]

The IRS has Publication 526, which talks though some of the issues in pretty clear language. You can get this off the IRS website: www.irs.gov

Amount of charitable deduction: Since your house and land is capital gain property, you can take a deduction equal to the FMV of your house. There are a lot of documetation requirements, including an appraisal, for a donation of this size.

HOWEVER, if you take a deduction equal to the FMV of your home, then your charitable deduction is limited to 30% of your adjusted gross income (bottom of page 1 income on your Form 1040). You can carryforward the unused amount of your deduction against future year taxes, subject to the same 30% limitation.

INSTEAD, you can take a deduction equal to your tax basis (i.e., the amount you paid for the home, plus cost of any improvements). If you chose this options, then your charitable deduction is limited to 50% of your adjusted gross income. You can carryforward the unused amount of your deduction against future year taxes.

Also, if your adjusted gross income is more than about $150,000 (for married filing joint return), your itemized deductions, including your charitable deduction, start to phase out (meaning a percentage of these deductions are lost and cannot be claimed).

Overall, it gets a bit complex.

 

[disneysteve]

Just thinking "out loud" here. Would it be better to sell the home, then make a cash donation of the 250K (or whatever amount) to the church? Would that donation be handled differently from a tax standpoint?

I have no clue but the thought occured to me as I read your post. Of course, that way, the church still wouldn't have a house, but they'd have the cash to buy one.

 

[katied]

I think the issue, looking back at the Community Board post, is that the market is slow, and it won't be so easy to sell the house.

The benefit of selling the house and donating the cash is the 50% limit vs the 30% limit and simplifed documentation (since you've donated cash, easy to prove value).

Normally, the big benefit of donating capital gain property is getting a FMV deduction without paying capital gains tax on the appreciation. However, most of the time gains on home sales are not taxed, so it's not so much a benefit.