The Ins-and-Outs of Times Shares and Use as Charitable Contribution's

Posted by Lee Reams Sr. on

Taxpayers sometimes donate a time-share week to a charitable auction, leading to questions about whether this is deductible as a charitable contribution.

Use of the Time-Share – For example, say that an individual donated one week’s use of a time-share as part of a charity auction. The charity provided him with a receipt for $5,000, the amount that the auction winner paid.

> Rev Rul 70-477, I.R.B. 1970-37 states that ”permission to use and occupy property... does not represent payment made to or for the use of the organization.... Such an arrangement does not constitute a gift of property. It is merely the granting of a privilege for which no charge is made.” 

> Although convolutedly worded, IRC Sec 170(f)(2)(A) is intended to provide a deduction for deferred giving using a charitable remainder annuity trust or unitrust (described in Sec 664) or a pooled income fund (described in Sec 642(c)(5)). 

> IRC Sec 170(f)(3)(A) does not allow a deduction for a contribution of a partial interest in property unless the contribution is one of the three exceptions described in Sec 170(f)(3)(B). None of these exceptions apply to this case. Sec 170(f)(3)(A) also states, “the right to use property shall be treated as a contribution of less than the taxpayer’s entire interest in such property.” 

> The Supreme Court has ruled that, in using the phrase “for the use of,” Congress meant to provide for property given in trust for the charity (Davis Et Ux. v. US No. 89-98 (Sup Ct, 495 U.S. 472)).
    Conclusion: There is no charitable contribution deduction for the use of the time-share. In addition, if the time-share is being used as a rental, the owner must count the time used by the successful bidder as personal use days.

    Maintenance Fees – Time-share owners generally have annual maintenance fees, which can be substantial. Can a charitable contribution be deducted for the prorated maintenance of the donated week?

    Regulation 1.170A-1(g) allows a deduction for expenses incurred in connection with a taxpayer rendering services to a qualified organization. In plain language, the expenses that are unrelated to services that the taxpayer personally rendered to the charity are not deductible. This would include services provided by others, such the time-share company; the services paid for by the maintenance fees are provided by others.

    However, if the taxpayer incurred expenses in connection with providing the use of the time-share, such as driving to the time-share to let the successful bidder into the property, a deduction for those expenses would be allowed under Regulation 1.170A-1(g).

    Conclusion: There is no charitable contribution deduction for the maintenance fee.