Taxing Situation: Home-Deconstruction Guidelines for Dummies
Here are some things to consider if you want to claim salvaged home materials as a charitable contribution on your income-tax filing, courtesy of David Welsh, a tax partner in the Silicon Valley, Calif., office of Moss Adams LLP:
> Use IRS Form 8283.
> Only charitable donations to certified 501(c) nonprofit organizations qualify (and not all of these organizations are willing to accept these kinds of donations).
> Donations larger than $5,000 require an appraisal from a certified appraiser.
> The deduction can be limited, depending on how much income you report.
> The appraisal fee does not count as a charitable contribution, but in some cases, it can be deducted on federal form Schedule A as a miscellaneous itemized deduction.
> The donation is deductible on most state income-tax filings.
For Kay Luo and her husband, Thomas Olavson, deconstruction made both cents and sense. In late 2011, they paid about $1.6 million for a 1,600-square-foot 1950s home in Palo Alto, Calif., to replace it with a 2,800-square-foot dream home. But the home had just been updated to prep it for resale. As such, a waste-not, want-not epiphany prompted Luo to search the Internet for an alternative to all-out demolition.
“The home still had life in it — it just seemed wrong to throw things like a new heater and vanities into a landfill,” notes Luo, who describes herself as “average” in terms of eco-consciousness. “But whatever we decided to do had to make sense from an investment and an environmental perspective. We’re not eco-nuts, but we wanted to do the right thing.”
Here’s what the couple discovered: Demolishing the home would cost $10,000. Hiring a deconstruction contractor — in this case, Palo Alto–based Rebuild Green — would cost $21,600. A certified appraisal of the salvageable items (required for tax filings for deductions larger than $5,000) cost another $1,500. So at first glance, demolition was a financial no-brainer: $10,000 versus $23,100.
But then things got interesting. Rebuild Green owner Roderick Cooper estimated that the value of the home’s salvageable items would offset the deconstruction expenses. And when the final figure came in higher — at about $117,000 — the resulting tax deduction more than covered the initial outlay.