Daniel Snyder’s Donation of His Mansion

I read that American businessman Daniel Snyder is donating his $35 million mansion to the American Cancer Society (ACS) which is an admirable thing to do. However, I also read how it was going to be done and that precipitated this blog. I hope he reads this beforehand since it does not seem like it is being done correctly from what I read.

I do not know Dan Synder personally and only know what he is doing from the news. I recommend doing some research and reading about it yourself.

From what I read, he will be donating the mansion to the ACS, and the organization will then put it up for sale and use the proceeds for its important cancer-fighting research. From a tax standpoint, if the transaction is done the way I read, his deduction would be limited to his cost basis. The IRS rules are quite specific.

This is a complicated area, but the simple rule is that donations of appreciated capital assets are deductible based on the fair market value of the property at the time of the contribution and any increment in value over the cost would not have to be recognized as income. We frequently recommend this to clients with appreciated securities who are considering charitable contributions. They will get a full deduction for the value and do not need to pay any tax on the capital gain. This is a pretty good tax tactic.

When real estate or certain other properties, such as art or collectibles, are donated there is a further rule that the property must be used in the conduct of the charitable organization’s activities. For now, let’s just stick with real estate and assume the mansion being donated would be used in some manner by the ACS in connection with its activities. In that case there now is a second rule that the property must be kept for three years. If there is a sale before then, the deduction would be limited to the donor’s basis, i.e., its cost. The cost would include any improvements and that total would be his cost basis.

Any sale that takes place in less than three years, as the article suggested, would cause the deduction to be limited to the cost basis. If his total basis is $10 million and the value is $35 million, his deduction would be limited to $10 million even though the ACS would receive proceeds based on a $35 million sale. If the ACS did not wait the three years, and all other provisions were adhered to, Snyder would lose the deduction of the appreciated value of $25 million. This seems pretty disastrous.

There are other rules, limitations and compliance issues that must be followed, but I wanted to cover the three-year holding period here which, from what I read, was not mentioned. Maryann Reyes, CPA, a tax Principal at Withum, co-authored an article with me that appeared in the March 2024 issue of The American Philatelist on the complete aspects of taxation for collectibles and where we specifically covered donations to charities and the three-year rule.

Charitable contributions are important and necessary and could result in substantial tax benefits, but the rules must be strictly observed in order to get the full benefits of the deductions. There are also many other ways of making charitable contributions that could also be considered, so it is suggested that anyone contemplating substantial contributions consult beforehand with a tax specialist familiar with such contributions.