Tax Deduction for Unwanted Property

Ever have a property that absolutely no one was interested in buying?  Under the Internal Revenue Code, 26 U.S.C. 170, it is possible that the property may be donated to a charitable organization in return for a tax deduction for a charitable contribution.  These transactions are rare, but may well benefit someone who can afford to contribute a property to a charitable, tax exempt organization qualified to receive charitable contributions under  the Internal Revenue Code, 26 U.S.C. 501.

The transactions are referred to as bargain sales.  Generally speaking, the property is transferred to a qualified organization for a nominal amount and the difference between that nominal amount and the fair market value of the property as determined by a qualified appraisal, is deductible on the seller's federal income tax return, subject to the limitations contained in Section 170 of the Internal Revenue Code.  For example a single family residence that is in less than desirable condition could be conveyed to a non-profit housing organization for $5,000 or even an amount that is just enough to cover the seller's closing costs.  The housing organization can then rehab the property and either sell it to low income families, or rent it and hold title long term.  In the meantime, the seller would be entitled to a charitable deduction equal to the difference between the nominal amount received and the fair market value of the property, assuming that the seller's basis in the property is less than the fair market value. 

It is most likely to late to put a bargain sale together to get a deduction for the seller for 2014 as the required appraisal should be obtained before the actual transfer of the property.  IRS Publication No. 526 explains some of the technical details for these transactions.  It is also strongly recommended that the seller consult with tax and legal advisers before attempting such a transaction.  It is something to keep in mind if you find a person with a non-salable property who just wants to get the property off his books.

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