With the housing market showing some signs of life, the times of purchasing properties to knock down a home and build a new one, may be returning. Getting rid of the home can actually be a costly process as it requires a demolition team and removal. To reduce the cost and apply for a tax break at the same time, some have let their local fire department handle the demolition and treated it as a charitable gift at the same time.
Can I really donate my house to the fire department?
It depends on the specific set of circumstances, but in most cases the courts have ruled no. Generally speaking, contributions of an undivided interest in a property, qualified conservation, or remainder interest in a personal residence are deductible under Sec. 170(c)(1). Therefore, if you let the fire department burn down your home for training purposes and don’t live on that land in the future, then you may be able to donate the value of the property and claim a portion as a deduction on your tax return. Most of the Courts have had issue with the valuation of the donation since the fire department is getting a benefit of training their employees that cannot possibly be on par with the value of a home worth several hundred thousand dollars.
What if I build a new home on the property?
The courts recently ruled that the deduction should not be allowed in this case since the donor did not transfer an undivided portion of an entire interest in the property. Specifically, after the home is demolished, the debris still needs to be removed and the property owners are still liable for any injuries that occurred on the property.
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