The Internal Revenue Service has a variety of complex rules about what types of charitable donations are and are not tax deductible. Generally, donations of goods or cash to a charity are deductible, while donations of personal services aren't.
TL;DR (Too Long; Didn't Read)
When it comes to giving a charity free rent, whether it's in a residential space or a commercial space, you generally can't deduct anything from your federal taxes.
Donating Use of Rental Property is Generally Not Deductible
If you own an office building, a rental home or some other property you normally rent out, and you know a charity that is in need of space, it may seem like a natural fit to offer the charity the use of the space rent-free.
While doing so might support a cause you care about, it's not deductible on your taxes. You can donate real estate to a non-profit group registered with the IRS and receive a deduction, but you can't provide free rent to a non-profit for a tax deduction. Essentially, you can only donate your entire interest in a piece of real estate, not a partial interest. And in the eyes of the IRS, donating the right to use the property while holding on to the title yourself is donating a partial interest.
If you instead decide you'd prefer donating a rental property to charity, and giving up all interest in it, you can generally deduct the fair market value of the property up to 30 percent of your adjusted gross income. In some cases, you may have to deduct the value of any capital gain you would have claimed if you sold the property.
You may at first technically be charging the charity rent and donating this income back to the charity, but this usually won't give you any tax advantage. Since charitable donations are a deduction, rather than a tax credit, you won't owe any tax on the rent income. But this won't leave you with any less tax liability than simply not charging rent. Additionally, you can't deduct more than 50 percent of your adjusted gross income in charitable donations, so you may not be able to claim all of the rent as deductible.
An After-Death Exception to the Rule
You are allowed to donate what's called a remainder interest, which is an interest that passes to your heirs when you die, so you can claim a deduction for donating the right to inherit your property after you die. In that case, you'd be able to use the property for whatever purpose during your lifetime, and you'd continue to pay property tax and maintain it, but it would pass to the charity when you die. When you sign the deal, you'd get to deduct the current value of the property minus the determined value of your continued use until your death.
Donations Under 2018 Tax Law
If you do choose to make an allowable donation, other than the use of property, to charity and claim it on your taxes, you must itemize your deductions. Under 2018 tax law, the standard deduction is $12,000 for a single person and $24,000 for a married couple filing jointly, so it generally only makes sense to itemize if you make more than this.
Donations Under 2017 Tax Law
Under the tax law in 2017, a similar mathematical argument applies, except that the standard deduction is $6,350 for single taxpayers and $12,700 for married couples filing jointly.
- HomeschoolCPA: Can My Landlord Get a Tax Deduction for the Free Rent He Gives Us?
- Habif Properties: Why Landlords Can’t Take a Tax Deduction For Donating Leased Space
- IRS: Publication 526, Charitable Contributions
- River Management Society: Gifts of Real Estate
- Forbes: https://www.forbes.com/sites/kellyphillipserb/2018/03/07/new-irs-announces-2018-tax-rates-standard-deductions-exemption-amounts-and-more/
- Forbes: IRS Announces 2017 Tax Rates, Standard Deductions, Exemption Amounts And More
Steven Melendez is an independent journalist with a background in technology and business. He has written for a variety of business publications including Fast Company, the Wall Street Journal, Innovation Leader and Ad Age. He was awarded the Knight Foundation scholarship to Northwestern University's Medill School of Journalism.