I own an investment property, which I regularly rent out to people. f I donate a few nights' stay at my vacation rental for a charity auction, is the value of this rental tax deductible?
Donating a vacation rental to a charity auction can be a great idea, particularly if you do so during the "off-season" when it's difficult to get tenants anyway. If your rental is near a popular ski resort, the off-season will probably be the summer months, while your beach house might be vacant in the winter. Below, we'll review the benefits; but explain the bad news about tax deductions.
By donating a week or so stay in your vacation home to a charity fundraising event, you'll support a charity you believe in, generate goodwill, and get some extra publicity for your rental. Indeed, having a listing in a popular charity auction could lead to you getting many new regular tenants. You could also offer the winning bidders the opportunity to extend their stay beyond the free rental period—for an additional fee.
One thing donating your rental to a charity auction will not do is reduce your taxes. IRS rules generally don’t allow a charitable deduction for a contribution of less than an entire interest in property. The IRS says that a contribution of the right to use property is a contribution of less than an entire interest in that property and is therefore not deductible.
Here’s an example of this rule in action drawn from IRS Publication 526, Charitable Contributions:
Example: Mandy White owns a vacation home at the beach that she sometimes rents to others. For a fundraising auction at her church, she donated the right to use the vacation home for one week. At the auction, the church received and accepted a bid from Lauren Green equal to the fair rental value of the home for one week. Mandy cannot claim a deduction because of the partial interest rule.
By the way, if the winning bidder at such a charity auction pays no more than fair market value for the rental, he or she doesn’t get a charitable deduction, either. This is because if you receive a personal benefit from making a charitable contribution, you can deduct only the amount of your contribution that is more than the value of the benefit. Thus, Lauren from the above example cannot claim a deduction because her bid was no more than the fair market value of a one-week stay in the beach home.
Consult with a tax professional if you have any questions about your vacation home rental property or donations to charitable nonprofits.
And for more articles on charitable donations to nonprofits, see the Nonprofit Fundraising section of the Nolo site.