Sale of home to a charity

Technical topics regarding tax preparation.
#1
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Client has a second home that a charity is interested in purchasing. Client will receive cash that is about equal to his basis. The charity will provide him with a form 8283 from a certified appraiser with the fmv of the property being much higher than the cash he is receiving. According to the charity he will be able to claim a charitable deduction for the difference between the fmv and cash he is receiving. The fmv the charity is telling him that will appear on the 8283 is over 50% more than the his realtor and the city assessment says the house is worth.


I know if the IRS challenges this my client will be the one responsible for additional taxes, interest ,penalties . Anyone have this situation in the past? Any thoughts...concerns? I know the high appraisal is of concern to me. Thanks
 

#2
sjrcpa  
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Your client should obtain an appraisal. Charities are not supposed to put values on the donations of property they receive. Your client is doing a bargain sale to charity, It is oart sale and part donation. The appraisal will need to be attached to the 8283 as part of the 1040.
 

#3
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SJ I agree with what you are saying. The charity says it will have an outside certified appraiser do the appraisal. One of my main concerns is that the charity is saying they will be able to obtain an appraisal for him that is so much higher than his real estate agent and the city is saying the house is worth
 

#4
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Does IRC 170(f)(8)(B)(i) apply here? Especially the bit in parentheses.
 

#5
Nilodop  
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There are specific rules for allocating basis in a bargain sale to a charity, and those rules do not appear to be contemplated in OP.
 

#6
Frankly  
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The donor expects to sell the house for the same as what he paid for it. In addition he is told he can have a charitable donation for the amount the house has appreciated since he bought it. How can he get a tax benefit for a contribution and at the same time avoid realizing a capital gain on the appreciated property?
 

#7
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Frankly my other concern is the appraisal. I think the appraisal is going to come in much higher than what the house is really worth. The charity is going to provide the appraisal and the signed 8283 . I am worried about the potential liability my client will face if IRS questions the transaction.
 

#8
dave829  
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Frankly wrote:The donor expects to sell the house for the same as what he paid for it. In addition he is told he can have a charitable donation for the amount the house has appreciated since he bought it. How can he get a tax benefit for a contribution and at the same time avoid realizing a capital gain on the appreciated property?

He must apportion the basis between the sales price and the contribution. See Reg. 1.1011-2.
 

#9
Frankly  
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davidlat wrote: I think the appraisal is going to come in much higher than what the house is really worth. The charity is going to provide the appraisal and the signed 8283.

The purpose of the appraisal is to determine a fair market value. The charity doesn't dictate the value to be reported by the appraiser. If you're concerned about skullduggery, then TP can pick another appraiser not connected in any way with the charity.
Re the required appraisal: §§1.170A-13(c)(4), (5), and (6)
 

#10
Frankly  
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Interesting paper about bargain sales to charities:
http://www.pgdc.com/pgdc/bargain-sales
 

#11
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"According to the charity he will be able to claim a charitable deduction for the difference between the fmv and cash he is receiving" and, according to disinterested tax professionals he won't be able to.

Who do you go to for tax information? I go to my barber...

See Dave829's reference to Reg 1.1011-2, above.
 

#12
Doug M  
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You client has a good idea of what his house is worth. I would start there.
 

#13
Doug M  
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The donor expects to sell the house for the same as what he paid for it. In addition he is told he can have a charitable donation for the amount the house has appreciated since he bought it. How can he get a tax benefit for a contribution and at the same time avoid realizing a capital gain on the appreciated property?


'Cause that is what the law says. He can give the appreciation to the charity and receive a deduction just the same as somebody giving appreciated stock to the charity. The question on the table is what is the true amount of the appreciation. It's a little more restrictive than securities, taxpayer needs to show donative intent.
Last edited by Doug M on 24-May-2018 4:43pm, edited 1 time in total.
 

#14
Frankly  
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Doug M wrote: He can give the appreciation to the charity and receive a deduction just the same as somebody giving appreciated stock to the charity.

He's selling the house.
 

#15
Doug M  
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He's selling the house.


Yes. And he is selling it to them for less than FMV. Referring to the article that you linked in post #10 A good example is right at the start of the article.

Mr. Smith owns a painting for which he paid $10,000. The painting has recently been appraised at $20,000. Mr. Smith would like to contribute the painting to a museum, but recover his original purchase price. He enters into an agreement with the museum whereby the museum will pay $10,000 cash for the painting. The museum will then place the painting in its collection.

Current Law: For bargain sales of property to charity after December 19, 1969, the amount of gain realized by a donor is the amount that bears the same ratio to the gain that would have been realized if the entire property had been sold at its fair market value on the date of the bargain sale. With respect to the previous example, Mr. Smith is still entitled to a charitable contribution deduction of $10,000; however, he will also realize gain in the amount of $5,000.

F = Fair Market Value = $20,000
B = Adjusted Cost Basis = $10,000
S = Sales Price (Amount Realized) = $10,000

Basis Allocated to Sale = S * (B / F) = $5,000


Later in the article, they discuss the Section 121 issue for bargain sales of residences.
 

#16
Frankly  
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In a bargain sale to a charity he gets a charitable contribution deduction, but does not avoid a capital gain.
 

#17
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He does on the portion he gifts.
~Captcook
 

#18
Doug M  
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Basis reduction could still provide for tax free gain under IRC 121

second home
Last edited by Doug M on 25-May-2018 12:50pm, edited 1 time in total.
 

#19
sjrcpa  
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OP said it is a second home.
 

#20
Doug M  
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Ooops, thanks sjr. He also trades ordinary deduction for cap gain income.
 


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