Donation of home to church is deductible.

* In 1994, a couple sold their residence to their church for $152,500. The property had a fair market value of $450,000. Under the contract, the couple retained legal title to the property but the church was given full access, enjoyment and possession of the property. The church also agreed to pay the taxes, make monthly installment payments of $1,400 and keep the property in good repair. Legal title was to be conveyed upon final payment.

On their 1994 federal income tax return, the couple claimed a charitable deduction for the difference between the property's fair market value and its sale price. The IRS denied the deduction although it agreed the couple had charitable intent. It said the gift was incomplete because the church had received a mere equitable right to complete the contract.

The Tax Court stated that under IRC section 170(a), in order for a taxpayer to claim a charitable deduction for a bargain sale, the transaction must be complete. The court found that based upon state law, the church took equitable title in 1994 when the contract was signed. Since then, the church bore the risk of loss, had the right to immediate possession, could sue third parties for nuisance or trespass, could erect improvements on the land and--with the couple's consent--could mortgage the property. This bundle of rights made the transaction complete and the deduction, therefore, was allowed (Kenneth L. Musgrave v. Commissoner, TC Memo 2000-285).