Rent Reduction as Charitable Contribution

5 Replies

We have been contacted by a priest who is working with a family that is in desperate need of a place to live. If we give them a huge reduction in rent from the amount we would charge, is that tax deductible as a charitable contribution? If not, if we charge them the full amount and then give them some money each month to help make the payment does that change things or is it the same thing? Trying to balance running our business with helping folks out.

@Jason Perry giving money to individuals does not count as a charitable deduction. You have to donate to a qualified organization. That organization could then pay you a portion of rent. Even if you were renting directly to an organization, the rent reduction does not count as a charitable deduction. You can reduce the rent, but be aware there are rules about renting under fair market value. You are only allowed to deduct expenses up to your rent amount in that circumstance. It probably depends on how much under fair market. If it was $100 under, the IRS wouldn't notice, but if you are renting a place $500 under and creating a major tax loss, it will be noticeable.

My advice is to not mix charity with business. If you want to give these people money, do it through an organization, so you can claim charitable deduction. The other option is give them money with no expectation of deduction or benefit.

In the first instance it appears that you recognize no taxable rental income to begin with 

In both sides instances it appears that the "contribution" inures to the benefit of a single individual





Originally posted by @Joe Splitrock :

@Jason Perry giving money to individuals does not count as a charitable deduction. You have to donate to a qualified organization. That organization could then pay you a portion of rent. Even if you were renting directly to an organization, the rent reduction does not count as a charitable deduction. You can reduce the rent, but be aware there are rules about renting under fair market value. You are only allowed to deduct expenses up to your rent amount in that circumstance. It probably depends on how much under fair market. If it was $100 under, the IRS wouldn't notice, but if you are renting a place $500 under and creating a major tax loss, it will be noticeable.

My advice is to not mix charity with business. If you want to give these people money, do it through an organization, so you can claim charitable deduction. The other option is give them money with no expectation of deduction or benefit.

Joe this is exactly the info we needed. Thanks for the help! It is greatly appreciated.  

@Jason Perry

Let's clear the math first. Normally the property warrants $1,000 rent, and you charge only $300. You have $300 taxable income (before deductible expenses of course). So your  $700 "charitable deduction" is already built into it, because you pay taxes on $300 and not on $1,000. You open the door to a "not rented for profit" argument, as @Joe Splitrock pointed out. This can take us into a debate on a controversial topic, which I'm not in the mood for right now. :)

Alternatively, you could pay taxes on $1,000 and separately donate $700 to a charitable organization - resulting in the same $300 taxable income, however with multiple complications because it may not end up in a dollar-for-dollar offset. You have to collect $1,000 still, and you cannot stipulate that the church returns you your "donation" as a rent subsidy. But at least you're clearly separating business and charity this way, which is a sensible approach.

Appreciate the responses on this. I sort of figured what the answer was, but I love being able to get on here and ask the experts. Great resource and great community.