Sep 25, 2011

In the article about Advertising your Vacation Rental I mentioned that for the last 3 years we've donated a stay at one of our vacation homes in a charity auction. We've usually donated a long weekend during off-season, so it wouldn't impact our ability to rent.

We've done this to support the Duke Children's Hospital. It's a worthy charity, and we've been pleased with how much money our donation has helped raised. However, there are complications and risks to consider.
  1. You cannot screen the guests
  2. You cannot deduct the value of the donation
  3. The guest cannot deduct the amount of their donation
  4. The stay counts against your own personal use for tax purposes

Screening Guests

Normally we are very careful when screening prospective guests. We have only once accepted a booking without speaking with the guest on the phone. I discuss in this other article the importance of screening guests. When you donate a stay to a charity, you give up the ability to screen.

In our case we're donating a stay at our vacation rental to a charity auction with colleagues. So I at least know all the people that might win the auction. But we've been asked to donate a stay to other charities before, and have refused because of this concern over screening guests.

No Deduction For Owner

Unlike cash, you cannot deduct the cost of a stay that you donate to charity. Donating a stay in your vacation home is considered "right to use property". This falls into the category of "partial interest in property". The IRS is very clear that this is not deductible. They even go so far as to provide an explicit example involving the donation of a stay at a vacation home to a church charity auction. This is covered in IRS Publication 526.

No Deduction For Guest

The guest receives the stay at your vacation home in return for their payment in the auction. The IRS considers this "a benefit equal to the payment". As such, the guest cannot take a charitable deduction for the payment. This is covered in the same example mentioned above in IRS Publication 526.

Personal Use

One of the factors affecting what rental expenses can be deducted is how many days of personal use you have had. When you donate a stay at your vacation home to a charity, those days are considered personal use. This is covered in IRS Publication 527.

Should I Donate?

With all these risks and complications, we shouldn't lose sight of the charity. It has still benefited from hundreds of dollars for each of these donated vacation rental stays. However, we still had to spend the same amount of time handling the booking. We also had to pay for the cleaner, utilities, and supplies. And we took on the risk that something could get broken. We would never donate a stay to a charity unless we knew everyone that might end up staying at our vacation home. 

Perhaps there is an alternative approach. Promote a week at your vacation rental in support of a charity. Offer the stay at your normal rate, or perhaps a small discount. Then make a cash donation to the charity equivalent to your net income (after cleaning and taxes) from the booking. You get to screen guests, it doesn't count as personal use, and you get a deduction for the cash donation.

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