Tax Deduction Implications Related to Charitable Donations of Time at Vacation Rentals
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In general, IRS rules and guidelines related to donations of (and charitable use of) time at vacation rental properties are not black and white. We’ve done our best to gather some useful information below.
When in doubt please contact your tax advisor as we are certainly not tax consultants.
Information for Vacation Rental OWNERS
Tax Deduction
We'd suggest that you consult with your tax advisor, but we located an (unfortunate) IRS ruling specifically geared to target donations of time at vacation rentals. In Revenue Ruling 89-51, the IRS ruled that the right to use a vacation home for one week, donated by the owner of the home to a charitable fundraising auction and sold for fair rental value, constitutes the "right to use property" and is not a deductible contribution. Again, consult your tax advisor for his / her guidance.
The theory is that allowing the use of an otherwise vacant property does not result in a direct, incremental cost to the owner.
The case can be made that if you had rented your vacation home and collected income and then donated that to charity, you would have shown revenue (and paid tax on that revenue) and received a tax deduction, therefore it would be a “wash”
Taxes on Income Received
If you receive a portion of the rent and the other portion goes to charity, then you should pay tax on the portion you received. You can’t take a charitable deduction for the amount donated to charity (since you didn’t pay tax on the revenue), but you also don’t have to report the charitable portion as income.
14 Day Rule
Internal Revenue Code Section 280A governs rules on the deductibility of expenses related to a second home. Section 280A dictates that if a vacation home owner occupies the home for more than the greater of a) 14 days or b) 10% of the number of days that the property is rented for fair value, then the expenses related to the home are personal in nature and non-deductible. So, if an owner rents a second home for 30 days a year, then the owner can stay in the home for 14 days and preserve deductibility, and if they rent the home for 200 days a year, then the owner can stay in the home for 20 days and preserve deductibility. If expenses are limited due to excess personal use, then expenses are prorated based on the days used personally. Mortgage interest and real estate taxes are deductible anyway, so these expenses are not affected by the proration rule.
Information for FUN LOVERS
Tax Deduction
The fun lover of a charitably donated vacation home rental will typically not get any sort of tax deduction. Tax rules dictate that where a person gives money to a charity and receives goods or services of value in return, a charitable deduction can be taken only to the extent that the amount paid exceeds the fair value of the good or services received. In silent auctions, for example, it is possible that the winning bidder for a vacation pays in excess of fair market value in order to help the charity. In this circumstance, the charity is responsible for reporting the amount of the tax deductible donation (over and above the fair market value as that portion is deductible) or simply providing the fair market value to the winning bidder at the silent auction.
Some Examples Specific to Geronimo Vacation Rentals for Charity
OK, so my rented on Geronimo for say $2,000 a week, half of the rent Is donated to charity and half comes to me. How much rental income is reported on my taxes?
$1,000. You can’t take a charitable deduction for the amount donated to charity, but you also don’t have to report the charitable portion as income.
Do I receive a tax deduction for the amount of that goes to Charity?
No. The IRS has held that the donation of time at a vacation rental property constitutes a “right to use property” and is not a deductible contribution. The theory is that allowing the use of an otherwise vacant property does not result in a direct, incremental cost to the owner.
My vacation rental property is managed by a property management company. On a $2,000 rental, the management company takes a fee of $200, $900 comes to me and $900 goes to charity. How do I report this on my taxes?
You would report $1,100 as gross rental income and a deductible expense of $200. Note that these items are probably reported to you by the property management company that manages your vacation rental property
Does the fun lover get a tax deduction for the amount that goes to charity?
Usually not. A charitable tax deduction can be taken only to the extent that the amount paid exceeds the fair value of the good or services received. In silent auctions, it is possible that the winning bidder for a vacation pays in excess of fair market value in order to help the charity. In this circumstance, the charity is responsible for reporting the amount of the tax deductible donation. However since Geronimo vacation rentals for charity are often great deals and much less than fair market value, a tax deduction for the fun lover is typically not going to be available.
How do weeks donated to Geronimo affect the 14 day rule?
This is not entirely clear. Property owners on our site typically receive rental income (they receive half the rent) from their posted weeks so we believe that the posted off-season weeks are included as “days rented at fair value” for purposes of the 10% calculation (and not included within personal days) The rules relating to personal use of rental vacation property are complicated. We strongly suggest that you discuss any issue you may have with your tax advisor.
View the IRS Topic 415 rules here
Any advice concerning Federal, state and local tax issues contained in this written communication has not been written nor is it intended by the author to be used, and cannot be used, for the purpose of (i) avoiding federal, state or local tax penalties that may be imposed by the Internal Revenue Service or applicable state or local tax provisions, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein. You should seek the council of a competent tax advisor for any specific issues relating to matters discussed herein.