I recently put together an article on how a business owner can take a tax deduction for renting out their home to their company for a business meeting. You don’t, however, have to be a business owner to get a tax break for renting out your home for a meeting.
By reading this tax tip, you’ll learn how to use the same concept available to a business owner to actually help you make money – yes I said make money – off your charitable contributions.
Sounds too good to be true right? Keep reading.
Section 280(A) of the tax code allows a homeowner to rent out their home for up to 14 days in a calendar year without having to (1) treat the property as a rental property and (2) pay tax on the rental income received.
A few of my clients make significant contributions to charitable organizations. Taking advantage of section 280(A) actually allows them to make money off their philanthropic pursuits by renting out their house to a qualified charity, church or synagogue to hold monthly meetings.
Here’s how it works:
After calling a local meeting facility to get their rates for renting a meeting room, its determined that the fair rental value to for twelve monthly meetings over a year is $5,000. Since less than 14 meetings are held a year, all the rent received by the homeowner from the charity is tax free.
Because of the charitable work performed by the charity, the homeowner makes a tax deductible charitable contribution of $6,000 to the charity renting the home. Assuming the homeowner is in the 25% tax bracket, this contribution saves the homeowner $1,500 in taxes.
So how do both the charity and the homeowner benefit from this set up?
Simple. The charity spent $5,000 and got $6,000 in return for a net cash return of $1,000. The homeowner, on the other hand, contributed $6,000 and got back $5,000 in tax free cash. While the homeowner spent $1,000 net, he/she also realized $1,500 in tax savings. As a result, the homeowner is actually up $500 on a cash basis. Now compare this to just giving a charity $1,000 as a donation. In this case, the homeowner would be out of pocket $750 after realizing a $250 tax saving on the contribution.
As you can see from this example, charitable giving can not only benefit a worthy cause but it can also make you money doing it.