Monday, July 2, 2012
An interesting editorial has appeared in the Houston Chronicle. In Historic Houston Deserves a Second Life, the Chronicle reports that a nonprofit organization has devised a plan to merge environmentalism, preservation of historic fixtures, commerce in such fixtures, and tax benefits. The process is described as follows:
It's called "deconstruction," and it works like this. The owner of a historic house (that is, 50 years or older) pays Historic Houston to disassemble the building. The vintage bits that can be reused - hardwood flooring, shutters, sinks, things like that - will be sold at a new Salvage Warehouse. Newer parts of the deconstructed house - say, a two-year-old high-end stovetop - will be sold elsewhere, with proceeds donated to Historic Houston. And most of what remains can be recycled.
The brilliant part? The deconstruction service will present the house's owner with receipts for charitable donations - donations that can save the owner thousands of dollars on their taxes.
Sound like a fool-proof plan? Not exactly, at least not without a caveat. Donors of houses are also apparently receiving a service – demolition services. Those services have value and must be taken into account in determining any net value of the charitable contribution. Market-value payments for demolition services would generally be non-deductible, and under-payments would likely result in a decrease in any otherwise-allowable charitable contribution deduction. I am reminded of cases disallowing claimed deductions for contributions of houses to fire departments (such as the recent Seventh Circuit decision in Rolfs v. Commissioner, blogged about here and on our sister TaxProf Blog). Of course, the value of the historic fixtures and other building components may surpass the value of an intact house donated on the condition that the structure be burned to the ground. Thus, although the contemplated series of events may indeed produce some tax benefits, they may not be quite as extensive as the casual reader of Chronicle might assume.