Is Donating Office Space To A Non Profit Deductible?

[Bronson]

Dear Harvey, I have a client in Los Angeles who owns a Commercial Business Park and would like to donate 10,000sf to a non-profit group 501(c)(3). The fair market value of this lease space is approx. $10,000 per month. Can he deduct any of this from his taxes? His company is an LLC and he is the sole owner so I believe it rolls over to his personal taxes. Can he take any deductions at all? If not, are there any work-arounds that he might consider?

Thank you for your time and I look forward to your answer.

ANSWER: See IRS Publication 526 "Charitable Donations" which is available at http://www.irs.gov/pub/irs-pdf/p526.pdf

especially on page 9 the IRS writes about "partial interests" under the heading "Partial Interest in Property" which means that donations of use are not deductible. Even if the landlord gives

space for free to use the landlord does not receive a charitable deduction.

I don't know of any "work-arounds".  Sorry. Harvey Mechanic, Attorney at Law - [email protected]

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.    

---------- FOLLOW-UP ----------

When I spoke to an IRS representative yesterday, they said that the landlord(depending on how his company was set up i.e., Class C or S or Sole Proprietorship)could deduct a percentage of the rent and could also deduct all of the utilities such as electric, water, etc.  After speaking with the IRS I wanted the advice of an attorney who specializes in this area.  It looks like this topic is debatable and additional research is needed.   Thank you for your time and advice.

[Milan]

You are welcome. I don't believe the tax law is clear and not really debatable. I cited to something in writing from the IRS as to your original question about "rent". As you may know, the landlord can not, if audited, use a verbal statement of an IRS representative to back up his deductions. If there is something in writing, either in the Code, Regs or case law that differs from my written citation as to "partial use", then I will certainly like to see it.

Actually the IRS gives an example that is right on point in that Publication 526 in the first column of page 9, "You own a 10-story office building and donate rent-free use of the top floor to a charitable organization. Because you still own the building, you have contributed a partial interest in the property and cannot take a deduction for the contribution." That comes, almost verbatim from section 1.170A-7(a) of the Income Tax Regulations.http://www.law.cornell.edu/cfr/text/26/1.170A-7 Originally you wrote to me that the landlord was considering to "donate 10,000sf" but you did not ask anything about the landlord's payment for the utilities.  That is an interesting question. See IRS Publication 561, "Determining the Value of Donated Property", which is available at http://www.irs.gov/pub/irs-pdf/p561.pdf and which discusses on page 2 that the deduction for donations of property is in the amount of the fair market value. The rest of the publication addresses certain types of property that would not be applicable in your case. Of course, payments for utilities is not "property" so it would be worthwhile to research the specific issue you raise.  I do not, though, off the top of my head, know of any reg or case law that covers that. I would be willing to work on your matter further, but I would need to spend a substantial amount of time and that would be beyond the scope of my offer of free services.  If you want to inquire about hiring me for such work, please contact me directly to the email address below. But the non-controversial procedure would be that the 501(c)(3) organization gets the utility accounts in its own name and pays those and the landlord may donate monthly or annually to the 501(c)(3) organization with a check or checks in the amounts of the utility payments. This would alleviate any unfortunate evidentiary issues.

Harvey Mechanic, Attorney at Law - [email protected]

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.