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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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We have a banquet hall we rent for a variety of events. One

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We have a banquet hall we rent for a variety of events. One of our partners is a booster/supporter of a University Hockey team. He would like to offer for free or at a drastically reduced price our hall for their once a month Sunday Banquet for the players and booster families. Can the cost of the normal rental rate be considered a donation on the hall's tax return?

Lev :

Hi and welcome to our site!
Generally, you cannot deduct a charitable contribution of less than your entire interest in property. A contribution of the right to use property is a contribution of less than your entire interest in that property and is not deductible.
However - you still will be able to deduct your actual expenses related to the property leased to the qualified charitable organization. Deductible expenses include - maintenance expenses, mortgage interest, real estate taxes, utilities, etc - related to that property.

Lev :

I suggest to look into IRS publication directly.
Specifically for your situation - please take a look into IRS publication 526 - page 9 - left column - at the top - http://www.irs.gov/pub/irs-pdf/p526.pdf
Right to use property. A contribution of the right to use property is a contribution of less than your entire interest in that property and is not deductible.
Example 1. You own a 10 story office building and donate rent free use of the top floor to a charitable organization. Because you still own the building, you have contributed a partial interest in the property and cannot take a deduction for the contribution.



So - based on that explanation and the example provided by the IRS - deduction of a fair rental value as a charitable contribution is not allowed.
Sorry if you expected differently.


Customer:

Not that I expected differently. This partner holds a 10% interest in our Business (the banquet Hall) and I fully own the building. The banquet hall business pays me rent as the building owner. So it's seems to be separate interests. Can the Banquet Hall as a business take the deduction?

Lev :

Business expenses are the cost of carrying on a trade or business. These expenses are usually deductible if the business is operated to make a profit.
If you rent to a charitable organization free of at very low fees - means you have no intention to make a profit - means not for profit rental activity - deductions are allowed only up to the amount you receive. The rest may be deducted as charitable contributions.
If you rent the property for both purposes - for-profit-rental and not-for-profit rental - you need to account separately for these activities.

Customer:

Excellent, thank you! One last clarification: Would the boosters of a university athlete team be considered a charitable organization?

Lev :

You may deduct charitable contributions of money or property made to qualified organizations.
To be tax-exempt under section 501(c)(3) of the Internal Revenue Code, an organization must be organized and operated exclusively for exempt purposes set forth in section 501(c)(3), and none of its earnings may inure to any private shareholder or individual.
Most organizations, other than churches and governments, must apply to the IRS to become a qualified organization. The IRS issues a determination letter to that organization. You can ask any organization whether it is a qualified organization, and most will be able to tell you.

Customer:

That really should have occurred to me... brain dead today I suppose. :) Thank you so much for your advice and time. I hope you have a great day! JC

Lev :

I am glad to be helpful. Be sure to come back if you need help with any tax related issues.
Please take a moment to rate my work. My goal is to provide EXCELLENT service and I will address all your follow up questions.

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