Tax Rules on Donations of Rentals

Posted in Tax Tips

Auctions are always popular fundraisers with non-profits, and arts organizations are no different in their affinity for this important tool.  However, you should be aware of special deductibility rules when it comes to the donation of rental rights.

Alice owns a vacation beach house which she sometimes rents to the public.  Approached by her favorite arts non-profit, she agrees to donate to their upcoming silent auction the rental of her beach house for one week.  From recent past rentals Alice knows that the fair market value of her donation is $1,200.  Later, at the auction, Bob wins the week in Alice’s beach house with his high bid of $1,500.

Should Alice claim a charitable donation of $1,200 or of $1,500?

Neither, because you cannot deduct a charitable contribution of less than your entire interest in a property.  When you donate the right to use a property for only a specified period of time, you’re donating what’s called a “partial interest” in that property and not the ownership of the property itself.  The Tax Code prohibits claiming a deduction for donations of partial interests in property.  Unfortunately, Alice won’t receive any tax break from her donation.

What about Bob?  Can he claim a charitable donation of $1,500 for his winning bid?

No, he can deduct only $300 of his bid.  As discussed in a previous post, contributions where the donor receives something of value in return for their donation aren’t deductible.  In this case, Bob received the right to use the beach house for a week, a right that is clearly valued at $1,200.  Only to the extent his donation exceeds the fair market value of the benefit he receives can he deduct the excess.  In this case, that excess is $300.

IRS Publication 526 gives plain-language guidance on charitable contributions including which organizations qualify as charitable, which contributions are deductible and which aren’t, important record keeping requirements, and more.

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Roundup

Posted in Roundup

Interesting arts- and artist-related tidbits culled from the Interwebs

  • Remember when MTV played music videos? http://ow.ly/7m5i4
  • If you don’t know how to connect, relate and communicate with people, there’s little hope for you in becoming profitably creative ow.ly/7l9rd
  • Che redux: How to create iconic images in 5 not-so-easy points ow.ly/7l667
  • Considering working from home? Ponder this: ow.ly/7r7gx
  • Still considering working from home? Set the scene: ow.ly/7r7Mg
  • Half-baked? “Content Theft Awareness Week” ow.ly/7l8lp
  • A royal flush? Sirius bypasses music royalty org ow.ly/7nGXV
  • The word for today is ‘libricide’ ow.ly/7l7Mn
  • US Copyright industries NOT losing money to piracy ow.ly/7l6R7

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Artisan Q&A: Fundraising Events for Non-Profits

Dear Rex,
Our arts organization is holding a fundraiser and selling tickets for $30 each.  How much of that ticket can a donor claim as a tax deductible contribution to our organization?
—Happy Feet

Dear Happy Feet,

To the extent that the donor (ticket buyer) receives something of value in return for their contribution, the part of the donation (the amount of value received) would not be deductible.

You should determine in advance the fair market value of the goods or services the ticket buyers might receive (for example, the value of dinner served, gift baskets given, etc.) and notify your potential donors of such when you publicize the fundraising event.

At the fundraiser, we plan on holding a silent auction. If an auction item is valued is $1,000 and sells for $700, how much is deductible? What if the same item sells for $1,500?

Again, the value received by the donor in exchange for such donation is what determines how much is of the donation is deductible.

Scenario A: Valued at $1,000, sold for $700. Purchaser gets a written acknowledgement of the good faith estimate of the art ($1,000 dollars). Because the donation is less than the value received, the donation is not tax deductible.

Scenario B: Valued at $1,000, sold for $1,500. Purchaser gets a written acknowledgement of the good faith estimate of the art ($1,000 dollars). The portion of the donation that is more than the value received ($500) is tax deductible.

In both cases, since the donation (purchase of art) is greater than $250, the non-profit must provide a written acknowledgement of both the donation and the value of the goods/services provided by the organization.

More information on good faith estimates and disclosure requirements for non-profits can be found in IRS Publication 557 or on the Charities and Nonprofits homepage of the IRS website.

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IRS Offers Info Session to Help Struggling Taxpayers

Posted in Tax News

Learn about the IRS Fresh Start Initiative via an informative, one-hour webinar on Wednesday, August 31, at 1pm (CT).

The IRS is helping individual and small business taxpayers get a Fresh Start with their tax liabilities, which includes changes to Collection policy for:

  • Lien filing threshold
  • Lien withdrawals
  • Installment agreements
  • Offer in compromise

Register at http://www.irs.gov/businesses/small/article/0,,id=158856,00.html#2

 

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IRS Increases Mileage Rate to 55.5 Cents per Mile

Posted in Tax News

The IRS has, effective July 1, increased the business mileage deduction to 55.5¢ per mile.

In case you didn’t know, you can also claim mileage deductions for three non-business purposes: transportation to and from medical treatment, relocation, and driving done as part of work with or for a charitable organization.

Here’s the breakdown, according to purpose, for both halves of 2011.

Purpose

Rates 1/1 through 6/30/11

Rates 7/1 through 12/31/11

Business

51

55.5

Medical/Moving

19

23.5

Charitable

14

14

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