Donate Everything…Including the Kitchen Sink!
Are you considering demolishing your home and rebuilding on the property, or buying property with the intention of demolishing the existing structure?
Contractors and taxpayers are recognizing that while one man's trash may be another man's treasure, it can also be a charitable deduction. The trend towards environmental friendliness has gone from installing eco-friendly, energy-efficient home heating and cooling systems to recycling and reusing nearly an entire home.
Although a taxpayer may want to demolish an existing home on the property, it may hold many items that could be recycled and reused by another consumer. There are several charitable organizations across the country that will accept new or gently-used materials from a home such as cabinets, appliances, doors, light fixtures, siding, roofing, windows, flooring, etc. The traditional demolition process does not afford the removal of these materials from the home without being damaged. However, a deconstruction of the home may be the perfect solution to this problem.
Demolition vs. Deconstruction
Demolition uses heavy machinery to knock down and completely destroy a home. The materials are condensed and transported to a landfill.
Deconstruction is the careful removal, using hand tools, of salvageable building materials from a home on a room-by-room basis. All usable materials are sorted and distributed for donation and reuse. The remaining structure is then demolished using conventional demolition methods.
What are the Benefits of Opting to Deconstruct?
Numerous charitable organizations that focus on building homes and living facilities in low-income or disaster areas gladly accept the donation of new or gently-used materials in furtherance of their charitable purposes. From the donor’s perspective, tax savings received from the charitable deduction will help a taxpayer recover some of the out-of-pocket cost to demolish the home despite adding additional cost to deconstruct the home for reusable materials. Since deconstruction employs environmentally-friendly methods to remove an unwanted structure, more manual labor is required and thus, it is a more expensive option. However, the reusable materials are diverted from landfills (thus providing a “green” solution) and the charitable organization will receive new inventory for direct use in homes or to put up for sale. It’s a win-win situation. There are also construction companies that will move an entire home to a new location for use by a charity or third party.
How Can Taxpayers Receive a Charitable Deduction?
A few important steps must be completed to ensure that the donating taxpayer receives a charitable deduction.
- Identify a qualified deconstruction contractor for an estimate of demolition and deconstruction costs and to determine a charitable organization that accepts reusable materials from the home.
- Retain a certified appraiser to inspect the property and to take measurements and photographs to determine the materials in the home that are eligible for donation. The appraiser will give the taxpayer an estimate of the charitable donation per square foot of living space. This will vary based on the location, age, style and condition of the home. The deconstruction contractor should be able to assist with identifying an independent appraiser.
- Perform a cost-benefit analysis to determine the economic advantage of "going green."
- At this point, the deconstruction can begin and an inventory of reusable materials prepared for donation to the recipient charitable organization.
- The taxpayer will receive the appraisal for the donated materials along with Form 8283, Non-Cash Charitable Contributions. This form must be signed by the appraiser and a representative from the charitable organization. The taxpayer is required to attach both Form 8283 and the appraisal to the tax return as support for the charitable deduction.
Economic Benefit Analysis
The following chart illustrates the possible after-tax benefit of using the deconstruction method over the traditional demolition method for the complete removal of a 6,000 square foot home with 5,000 square foot of living space. The cost of demolition is treated as a fixed cost to the taxpayer since it will be incurred regardless of whether the taxpayer proceeds with the recycling of the useable materials. The cost of hiring a deconstruction company and the appraisal fee for the donated property value are the added costs by which the taxpayer will compare the benefit of receiving a charitable deduction.
| Deconstruction Method | Traditional Demolition Method | |
| Cost of Demolition (Fixed Cost) | $ 45,000 | $ 45,000 |
| Additional Cost for Deconstruction | 15,000 | 0 |
| Appraisal Fee for Donated Property Value | 2,500 | 0 |
| Total Costs | $ 62,500 | $ 45,000 |
Appraised Charitable Contribution (based upon appraiser's estimate and the condition of salvaged materials)
|
$ 175,000 | $ 0 |
| Cash Value @ 40% (combined federal & state tax rates) | $ 70,000 | $ 0 |
| Total Costs (From Above) | $ 62,500 | $ 45,000 |
| Total After-Tax Benefit/(Cost) | $ 7,500 | ($ 45,000) |
As illustrated in the analysis above, an additional $17,500 of out-of-pocket costs to use the deconstruction method results in after-tax savings of approximately $7,500. In addition to tax savings, there are environmental and positive perception benefits in one's community by using the deconstruction method that cannot be quantified in this analysis.
One should be sure to consider the tax saving options before knocking down the house and realizing the opportunity went down the drain. Given the broad range of benefits associated with choosing the deconstruction process, it will undoubtedly continue to be a growing area of interest as real estate markets improve.
