FAIR MARKET VALUE OF HEATING AND AIR-CONDITIONING SYSTEM ADDED TO RESIDENCE QUALIFIES AS CONTRIBUTION OF REMAINDER INTEREST

LTR. RUL. 8529014

FULL TEXT:

Refer Reply to: CC:IND:I:3:2
Release Date: April 16, 1985

* * *

Dear * * *

This is in reply to a letter written on your behalf, requesting a ruling on the application of section 170 of the Internal Revenue Code to the transaction described herein.

In 1983, you made a gift of a remainder interest in your personal residence to an organization described in section 170(c) of the Code. Although under section 170(f)(3) of the Code gifts of partial interests are generally not deductible as charitable contributions, the provisions of section 170(f)(3)(B)(i) of the Code permit an exception in the case of a contribution of a remainder interest in the donor's personal residence. Accordingly, you took a charitable contribution deduction on your 1983 federal income tax return for the gift of the remainder interest in your personal residence.

Since making that gift, you have paid for the installation of a new heating and air conditioning system for the residence. This system will be permanently attached to the real property as an integral part of the residence.

We have been asked to rule on the following issues:

(1) Whether the installation of the new heating and air conditioning system constitutes a further charitable contribution of a remainder interest in a personal residence within the meaning of section 170(f)(3)(B)(i) of the Code;

(2) Whether the system constitutes tangible personal property within the meaning of section 170(a)(3) or section 170(e)(1)(B)(i) of the Code; and

(3) Whether the amount of the charitable contribution allowable, if any, is determined by the application of a special factor (within the meaning of section 1.170A - 12(e) of Income Tax Regulations) to the cost of the system.

Section 170(a) of the Code provides, in part, that there shall be a deduction for any charitable contribution payment of which is made during the taxable year. Section 170(a)(3) of the Code and section 1.170A - 5 of the regulations disallow a deduction for contributions of future interests in tangible personal property; section 1.170A - 5(a)(3) of the regulations makes it clear that this rule has no application to transfers of future interests in real property. However, a fixture which is intended to be severed from real property shall be treated as tangible personal property.

Section 170(f)(3)(A) of the Code denies a charitable contribution deduction for the donation of an interest in property that consists of less than the taxpayer's entire interest in the property. However, section 170(f)(3)(B)(i) of the Code excepts contributions of remainder interests in personal residences from the application of section 170(f)(3)(A) of the Code. Section 1.170A - 7(b)(3) of the regulations provides, in part, that the term "personal residence" includes any property which the taxpayer uses as his personal residence.

Section 1.170A - 7(c) of the regulations provides that the amount of the deduction allowable under section 170 of the Code in the case of a charitable contribution of a partial interest in property is the fair market value of the partial interest at the time of the contribution. The fair market value of a remainder interest in real property which is not transferred in trust is determined in accordance with section 170(f)(4) of the Code and section 1.170A - 12 of the regulations.

Provided that upon installation the central air and heating systems will, under applicable local law, become a fixture and, thus, part of the real property to which it is affixed and provided further that there is no intent to sever it from the real property, we conclude that the system will not be treated as tangible personal property for purposes of section 170(a)(3) of the Code. Furthermore, we conclude that the installation of the system constitutes a further contribution of a remainder interest in a personal residence within the meaning of section 170(f)(3)(B)(i) of the Code and is therefore deductible under section 170(a)(1) of the Code, subject to the applicable limitations. However, as discussed with your authorized representative, we have concluded that the fair market value, not the cost, of the remainder interest in the system is the proper measure of the amount of the charitable contribution deduction available to you. See sections 170(f)(4) of the Code and 1.170A - 12 of the regulations.

Except as specifically ruled upon above, no opinion is expressed as to the federal income tax consequences of the transaction described herein.

This ruling letter is addressed solely to the taxpayer on whose behalf it was requested. Section 6110(j)(3) of the Code provides that this letter ruling may not be used or cited as precedent.

You should attach a copy of this letter ruling to your tax return for the taxable year in which the transaction covered by this ruling is consummated. A copy is enclosed for that purpose.

In accordance with the terms of a power of attorney on file in this office, a copy of this letter is being sent to your authorized representative.

Sincerely yours,

Richard H. Manfreda
Chief, Individual Income Tax Branch