Free Use of an Automobile

Q: A local automobile dealer wants to provide our pastor with free use of an automobile. Can we give the dealer a contribution receipt equal to the lease payments he would have received during the same time period?

A: Unfortunately, no. The automobile dealer has only contributed a partial interest in the automobile to the church. According to the tax code, this would not result in a charitable contribution. IRS Publication 526, Charitable Contributions, explains that a donor has to transfer the entire interest in property to claim a charitable contribution.

Rent-free use of buildings or automobiles would not meet the criteria for a charitable contribution because the church has not received full interest in the property. The publication further states, “a contribution of the right to use property is a contribution of less than your entire interest in that property and is not deductible.”

The IRS guidance provides the following example:

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 contributions.

Of course, there are a few exceptions where transferring a partial interest may result in a charitable contribution, such as donating:

• A remainder interest in your personal home or farm.
• An undivided part of your entire interest.
• A partial interest that would be deductible if transferred to certain types of trusts.
• A qualified conservation contribution.

For more information on partial interest contributions, see IRS Publication 526, Charitable Contributions, at www.irs.gov.