Can You Write Off Free Rental to Charity on Your Taxes?

Donating cash instead of waiving rent payments is one way to ensure you get some tax benefit for helping out a charity.

Donating cash instead of waiving rent payments is one way to ensure you get some tax benefit for helping out a charity.

Allowing a charity to operate out of a commercial building or home you own rent-free may be the most valuable donation the organization ever receives. Unfortunately, the law doesn't allow individuals or businesses to write off the rent normally charged as a charitable deduction. But there are other ways you can save money in tax that won't require the charity to start paying rent every month.

Partial Property Interests

The charitable write-off rules generally don't treat donations of partial property interests, which include leasing your property rent-free to a charity, as a charitable contribution. Typically, charities must own the property as a donation rather than just having a right to use it rent-free.

Cash Contribution Alternative

One way around this partial property interest problem is to make a cash donation instead. Perhaps you can rent the property to a different tenant and use the rental income you earn to fund the donation. By giving the charity the rental income, the organization can use the funds to pay rent somewhere else. Effectively, this arrangement allows the charity to continue operating without the financial burden of paying rent. And best of all, you'll have no problem writing off the entire cash donation on your taxes – provided your annual charity deduction isn't more than 50 percent of your adjusted gross income. But even if your deduction is limited one year, you can carry it forward and write the excess off on the returns you file over the next five years.

Free Rent Savings

Maybe there's something unique about the property you own that benefits the charity or some other reason why the charity doesn't want to lease other space. In this case, you can still reduce your tax bill by offering to waive rental payments each month – but not with a charitable contribution. By eliminating the annual rent you'd normally collect on the property from your tax return, it can have a similar effect as a charitable deduction. For example, suppose you normally charge $1,000 per month in rent for the space and incur related deductible expenses of $100. This means your tax return will report $12,000 in rental income, which after deducting rental expenses, increases your taxable income by $10,800. Because charitable deductions reduce your taxable income, not having to report the rental income in the first place can get you close to the same tax savings.

IRS Donation Requirements

If you decide to donate cash instead of offering free rent, you should be aware that the Internal Revenue Service requires that you retain a written acknowledgment from the charity for each cash donation of $250 or more. This acknowledgement is like a written receipt, but it must always include the cash donation amount; a statement regarding the benefits you received in exchange, if any; and the date the donation was made. You can, however, obtain a single acknowledgement for multiple donations if the charity lists each one with the required information on it. Also remember that the only way to report a charity write-off is on Schedule A – which means you must itemize to take the deduction.

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About the Author

Michael Marz has worked in the financial sector since 2002, specializing in wealth and estate planning. After spending six years working for a large investment bank and an accounting firm, Marz is now self-employed as a consultant, focusing on complex estate and gift tax compliance and planning.

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