Upen and Avanti Patel received some unfortunate news today. About six years ago, they donated their Virginia home to local firefighters for a training exercise. The training was used as a real-life simulation of a house fire. As a result of their gesture, the Patels deducted $92,685 from their 2006 taxes. However, on Thursday, a divided U.S. Tax Court ruled the Virginia couple cannot deduct the property’s value from their federal income taxes.
The IRS challenged their deduction because the Patels hadn’t donated their full interest in the property.
According to Judge Dawson, “The fire department does not acquire the right to eject the landowner from the building and cannot force the landowner to allow the destruction of the building should he change his mind before the house has been destroyed.”
Judge Dawson and seven others judges agreed with each other on this position (with one concurring as a result) while eight judges dissented. According to the dissent, the Patels’ interests in the house were destroyed during the simulated house fire.
“All substantial property interests of an owner in his structure are eliminated when the structure is demolished,” said Judge Joseph Gale.
The judges’ decision will not change future cases because property law is still heavily debated in Virginia. Now the Patels have lost their property and deductions as a result of this contentious issue.
JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.