Help charity and make money
Combining tax-free home rental with charitable donation is a win for both you and your favorite cause.
Here’s an idea you can use to do good, and make out at the same time.
Once you get the basic concept, it makes a lot more sense than the gobblygook we call the Tax Code.
Here’s the secret. There’s a section in the Tax Code that allows you to rent out your house for as much as 14 days tax-free. Rent it the 15th day, and all of the income is taxable. But keep it to 14 or less and there’s no federal tax on the cash.
We don’t have to go into why we have that section. What’s important is how you use it.
Say you belong to a charitable institution with a board that meets once a month. You rent the charity your house for its meeting at fair market value, $5,000 for the 12 days. Because even the IRS can figure that 12 is not more than 14, and that’s $5,000 with no federal income tax.
Now, out of the goodness of your heart, and without any prearrangement, you contribute $6,000 to the charity.
If you itemize your deductions, that $6,000 is allowable. For 2010, if you’re single with taxable income of $40,000 before the deduction, you’re in the 25% bracket and save $1,500 in taxes.
You also have $5,000 in tax-free rental cash for a positive $6,500. Subtract the $6,000 you gave to the charity and you’re still ahead $500.
And the charity?
It paid out rental income of $5,000 and got a $6,000 contribution. That’s $1,000 more for the poor and needy.
Ain’t the magic of the Tax Code just grand!
VIDEO ON MSN MONEY
Copyright © 2014 Microsoft. All rights reserved.