Vacation Home Donations: What You Need to Know Before You Give

Donating to charity is a great way to support organizations you care about, but not every charitable contribution comes with a tax deduction. One situation to be especially careful about is donating the right to use your vacation home to a nonprofit organization. Schools, churches, and other nonprofits sometimes accept vacation-home stays as prizes for fundraising dinners, galas, or charity auctions. While this may sound like a good way to support a cause and potentially receive a tax benefit, the tax rules can be more complicated than you might expect.

You May Not Get a Charitable Deduction

If you simply give a charity the right to use your vacation home for a certain period of time, you generally can't claim a charitable deduction for the rental value of that use.

The reason is that you're giving the charity the right to use the property rather than giving away the property itself. A partial interest in property generally doesn't qualify for a charitable deduction.

What About the Person Who Wins the Auction?

The person who wins a vacation-home stay at a charity auction doesn't automatically get a tax deduction either. Generally, the winning bidder would only have a potential charitable deduction if the amount they paid for the auction item was more than the fair market value of the vacation stay. In other words, if someone pays $2,000 for a vacation stay worth $1,200, the potential charitable portion would generally be the amount paid above the value of what they received.

Renting Out Your Vacation Property? There’s Another Issue

If you also rent your vacation home to other people, donating its use to a charity can create another tax consideration. The time the charity's auction winner spends using the property can count as personal use of the property. This matters because the IRS has special rules that can limit rental-loss deductions when an owner's personal use exceeds certain thresholds. Generally, the personal-use limit is based on the greater of 14 days or 10% of the number of days the property is rented at fair rental value. So, donating a few days of use may have tax consequences beyond simply not receiving a charitable deduction.

What About Timeshares?

The same concept can apply to timeshares. If you donate the right to use a timeshare unit to a charity, you generally can't claim a charitable deduction for the rental value of the unit.

The Bottom Line

Before donating the use of a vacation home or timeshare, don't assume that you'll receive a charitable tax deduction. The tax treatment depends on what you're actually giving to the charity and how the property is otherwise being used. If you're considering donating vacation-home or timeshare use to a nonprofit, it's a good idea to talk with your tax professional before making the donation. A little planning ahead of time can help you understand the tax consequences before you commit.