In recent years, more than a few taxpayers have thought they could buy that “tear down,” give the house to their local fire department for a live burn it-training exercise, and claim a charitable donation deduction.
“Not so fast,” said the 7th Circuit Court of Appeals in its recent decision in Rolfs, et al. v. Comm (109 AFTR 2d 2012-xxxx, 02/08/2012). These taxpayers did just that, claiming a $76,000 charitable donation deduction in 1998 for the “value of their donated and destroyed house.”
In noting that charitable deductions for burning down a house in a training exercise are unusual but not unprecedented, the Court noted that the valuation of the building, valued as if the house was given away intact and without conditions, is not a complete or correct way to value such a gift.
“When a gift is made with conditions,” said the Court, “the conditions must be taken into account in determining the fair market value of the donated property…..Proper consideration of the economic effect of the condition that the house be destroyed reduces the fair market value of the gift so much that no net value is ever likely to be available for a deduction.”
More from Nolo: Tax Deductions on Charitable Contributions