Need advice: Using a property for charity

[Nathan Gesner]

Background: A woman owned a property with her primary residence, a guest house, and a warehouse. She used the warehouse to start a food distribution center in 1998. She passed away last year and the kids are only interested in selling the property and running off with the money. They don't care about maintaining her charity. I've been looking for a way to serve the community and this seems to be a perfect fit! I can purchase the property to ensure her legacy continues uninterrupted. 

I would purchase the property for around $500,000 with $200,000 in cash and $300,000 financed. The two residential rentals would pay the mortage plus provide an additional $1,300+ per month. I would allow the food distribution center to use the warehouse at no charge.

My question: if the warehouse has a market value of $1,000 a month and I let them occupy for free, do I get to write off $12,000 a year in charitable contributions? This is strictly a charity and not a money-making scheme, but I want to confirm I'm not leaving money on the table by missing out on a tax deduction or other benefit.

If anyone has advice about a situation like this, I would love to hear from you. I have my CPA looking into this but she isn't an expert on investment property and deductions.

[Nathan Gesner]

I asked my CPA and she's looking into it but pretty much said the same thing. So I told my wife we may just have them pay rent and then we could donate the funds back to them.

I find it interesting that I can donate money, a car, or even a used jacket and it's deductible, but I can't donate the use of a facility even though it has significant financial value.

Thanks for answering.

[Ashish Acharya]

Originally posted by @Nathan Gesner:

Background: A woman owned a property with her primary residence, a guest house, and a warehouse. She used the warehouse to start a food distribution center in 1998. She passed away last year and the kids are only interested in selling the property and running off with the money. They don't care about maintaining her charity. I've been looking for a way to serve the community and this seems to be a perfect fit! I can purchase the property to ensure her legacy continues uninterrupted. 

I would purchase the property for around $500,000 with $200,000 in cash and $300,000 financed. The two residential rentals would pay the mortage plus provide an additional $1,300+ per month. I would allow the food distribution center to use the warehouse at no charge.

My question: if the warehouse has a market value of $1,000 a month and I let them occupy for free, do I get to write off $12,000 a year in charitable contributions? This is strictly a charity and not a money-making scheme, but I want to confirm I'm not leaving money on the table by missing out on a tax deduction or other benefit.

If anyone has advice about a situation like this, I would love to hear from you. I have my CPA looking into this but she isn't an expert on investment property and deductions.

You can’t deduct the use of the property. If you want deduction, you have to donate the property.

Or if you want to deduct the use of the property, it can be set up via trust. But it might not give you what you are looking for. 

The other way is: 

They pay you the rent for a use.  You later donate the money back to the charity. The charity is at the same place, but you have to pick up income and might get deduction if it’s not limited. 

[Nathan Gesner]

I asked my CPA and she's looking into it but pretty much said the same thing. So I told my wife we may just have them pay rent and then we could donate the funds back to them.

I find it interesting that I can donate money, a car, or even a used jacket and it's deductible, but I can't donate the use of a facility even though it has significant financial value.

Thanks for answering.

[Nathan Gesner]

@Ashish Acharya Just read up on this. I could charge them rent then donate that rent back to them as a charitable contribution, but there's no real tax advantage.

Based on what I've heard and read, I'm not missing out on anything. I'll let them use the space rent-free. I just didn't want to leave money on the table by missing a deduction.

Thanks!