Don't get burned trying to beat IRS
Letting the fire department burn down your old house to clear land for McMansion is usually deductible.
Before the real estate market cratered, it was fashionable to buy an old home on a huge lot, tear down the building and construct a new McMansion. Since this was a personal expense, the destruction of the old house was not deductible.
Then, some taxpayers got creative.
It seems that many fire departments need homes to practice their search-and-rescue procedures, sharpen their firefighting techniques and test their equipment. Give your old house to the fire department to torch and you’ve made a deductible charitable contribution. You’ve also cleared your land for your new McMansion.
When our bureaucratic bandits tried to deny the deduction, they were slapped down by the courts. The donation of the building for a fire company’s training and equipment testing was clearly allowable.
The IRS tried smoke and mirrors, arguing that the taxpayer did not gift the entire property because he didn’t donate the land. But, the taxpayer only deducted the house, which was an asset unmistakably separate from the land itself.
Bottom line? A sweeping victory for the taxpayer.
But, the magic doesn’t always work. In another case, the court found the value of the property without the building was greater than the value with it and denied the deduction.
I think this was a bad decision. The fact that you also receive a benefit shouldn’t obviate the charitable contribution. Do I lose my deduction for a cash contribution to the Red Cross just because they rescue me from a flood next week?
I don’t think so!
So, my advice to my clients is simple – burn, baby, burn!
But remember to get a receipt.
VIDEO ON MSN MONEY
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.