How to determine fair market value for a home donated to a fire department for training exercises?

Question

In "Scharf v. Commissioner", the US Tax Court established that donating property for use in firefighting training exercises provides a valuable service to the community. If the receiving fire department is not for-profit, the donation can be considered a tax-deductible donation (the fire department will destroy the home via a controlled fire).

How can a taxpayer determine the Fair Market Value of the donated structure? Is a home appraisal (which itemizes the value of land and "improvements" separately) sufficient for determining the Fair Market Value of the structure to be donated?

Notes:

• The remaining structure will be demolished at home owner's expense following the fire department's training.
• Item 8 of this Forbes article does a nice job of summarizing the life and times of the home-burning deduction.

Answer 1

I'm not a tax professional, and this is something you should get a professional advice on.

But having said that, I think you answered your own question. It is explained in that Forbes article, that the donated value is in fact the value of the house you're going to demolish. So in fact you didn't donate anything but rather got help in demolishing a structure you would have demolished anyway.

I believe (as a non-professional) it would be difficult to claim a deduction in such a scenario, and the courts ruled accordingly in Rolfs vs Commissioner. It is held there that the deduction value didn't exceed the value of the services provided (burning down the house).

Held , further : Ps did not make a charitable contribution within the meaning of sec. 170(c) as a result of their donation of the house because they received a substantial benefit in exchange for the donation and have failed to show that the value of the property donated exceeded the value of the benefit received

Also, keep in mind that you don't donate the land or the structure, only the right to burn it down. Which also invalidates the deduction, as has been ruled in Patel vs Commissioner.

Held , further , Ps donated only the use of the Vienna property and the house to FCFRD, a partial interest in the property, and pursuant to I.R.C. sec. 170(f)(3) are not entitled to the $92,865 noncash charitable contribution deduction claimed on their 2006 income tax return under I.R.C. sec. 170(a).

Bottom line - get a proper tax and legal advice from a professional, but to me it looks like that ship has sailed, and the deduction will no longer be allowed.