Responsible Renovation and Tax Planning

Did you know that an average kitchen could have a material value of $6,000-$15,000, while some luxury kitchens are valued as high as $90,000? 

This week Jessica I. Marschall, owner of The Green Mission Inc., breaks down how the process works.

Components of the Itemized Deduction

Under the Tax Cuts and Jobs Act (TCJA) there were some major changes to the Schedule A:

Medical Expenses—most can never take this deduction. In 2020 the deduction is only available for medical expenses exceeding 10% of Adjusted Gross Income. If your AGI is$100,000, you cannot deduct a cent until you hit $10,000 in medical expenses.

State and Local Taxes (SALT)—capped at $10,000. This has been catastrophic to many taxpayers. Let us say a taxpayer pays $20,000 in state taxes and $15,000 in real estate taxes. Prior to the TCJA, this portion of Schedule A would be valued at $35,000.Under the new law, this is capped at $10,000 and $25,000 is lost forever.

Mortgage Interest—This is capped at underlying mortgage values of $750,000.

Charitable Contributions  1) Monetary—These cash donations are capped at 60% of AGI (up from 50% pre-TCJA) and have a 5-year carry forward. 2) Non-monetary—These are donations of property capped at 50% of AGI with a 5-year carry-forward.

Prior to the TCJA, Itemized Deductions included Miscellaneous Itemized Deductions, which were unreimbursed employment expenses limited to a 2% AGI floor. TCJA took these off the table.

Another critical component of Itemized Deductions are that the phase-out for higher income earners has been removed. Taxpayers can now enjoy the full benefit of their Itemized Deductions without limit. Upon review of the Itemized Deductions above, Charitable Contributions provide the potential for significant tax savings by careful planning and execution.

The net tax effect of a donation is equal to the taxpayers federal effective (average) tax rate, plus state tax rate for most states that include charitable deductions in determining taxable income. If a client has an effective rate of 28% and a state tax rate of 6%, every dollar donated will result in a tax reduction of $.34.

Home Renovation Projects and Charitable Contributions

This year, many homeowners are considering home renovations, with kitchen renovation being one of the most popular projects undertaken. Taxpayers may be surprised at the inherent worth, or IRS defined Fair Market Value, of their kitchen. Granite, cabinetry, lights, sinks and faucets, refrigerators, microwaves, dishwashers, wood flooring, and numerous other kitchen materials, appliances and fixtures can be carefully removed and donated to charities.

If the donated materials have a Fair Market Value in excess of $5,000, the IRS requires a “Qualified Appraisal” by a “Qualified Appraiser.” An average kitchen donation could have material value anywhere from $6,000 to $15,000, with luxury kitchens being valued for as high as $90,000. The valuation depends on the quality and quantity of the property salvaged.

Critical to these deductions are the reliability and accuracy of the appraisal produced. Our team at The Green Mission Inc. has the highest education attainment within the deconstruction appraisal industry. I have an MS in Accounting and have been a practicing CPA in my tax consultancy practice for 19 years. Our COO, Mayur Dankhara, has a MS in Construction Management, is an accredited member of the International Society of Appraisers, and has attained LEED AP certification.

Our VP Diane Scarbrough, is an ISA member with two decades of experience in both real and personal property appraisals. Jennie Lumpkin, Director of Business Development, has been working within the deconstruction appraisal industry for eight years and has an extensive background in insurance valuation and adjustments. We also have a staff working around the country with years of deconstruction and donation industry experience.

Our appraisals are based on market-based valuations derived from comparable sales of similar property in the most relevant market. Our reports include the comparable properties evaluated, statistical analysis of the data to ensure validity of values, and a final value reconciliation produced with impeccable attention to detail.

We provide a no-obligation quote providing an estimate of the potential tax deduction value. We can provide this via photographs or by visiting onsite. The client can then conference with their CPA to determine if the deduction makes sense given their specific tax situation.

Reuse Industry Leaders: Renovation Angel

We are proud to work with nonprofit industry leaders around the nation with missions to divert waste from the landfill and promote socially and environmentally conscious missions. We have been particularly impressed with the work done by Renovation Angel. Founder and CEO Steve Feldman, and his amazing staff, serve clients from coast to coast. They recently launched a partnership with luxury kitchen appliance company Miele.

The superior quality of Miele appliances is evidenced by their products sometimes lasting many years beyond the life of typical appliances. Miele is now offering a 10% discount to customers on new kitchen purchases when they donate their pre-owned kitchen to Renovation Angel.

The mission of Renovation Angel was inspired by Steve Feldman’s desire to give back to a community that provided recovery to him in his time of need. In Steve’s own words:

“Why did I start Green Demolitions and then Renovation Angel? Because I wanted to “give back” after my life was given back to me. Here’s my story –I was a teenage drug and alcohol abuser raised in Poughkeepsie, New York and suffered two bouts of serious suicidal depression before I got my recovery.”

“I was in the radio business for 18 years, winding up as the Senior Marketing Manager for two Clear Channel Providence, RI radio stations (WWRX-FM and B101). My recovery happened in the middle of my radio career. My radio sales flourished and I earned enough money in the next four years to start giving back. I left radio in 1998 to pursue fund-raising for addiction recovery outreach projects. In my first year I had meetings with foundations and philanthropists in Beverly Hills, San Francisco, San Antonio, West Palm Beach, Golden, CO, etc., etc. The results – travel expenses $20,000 – funds raised $7,500.”

To start the process of kitchen donation with Renovation Angel, clients can schedule a free inspection to determine the potential resale value of the kitchen. A highly-trained team will provide free, white-glove service that is fast, clean, and discreet—typically in and out within one day.

Finally, the client can then choose an independent appraiser to substantiate the kitchen value and produce the appraisal as well as provide their signature and appraised value on the appraisal summary, IRS form 8283, along with the nonprofit’s signature of acceptance.

The client then fills out their portion of the form, which includes the original cost basis of the donation. It is of highest import to fill out this portion completely and accurately with assistance from a CPA.

Renovation Angel’s charitable mission diverts tons of would-be construction and demolition waste from hitting the landfill. These beautiful kitchen materials, appliances, and fixtures can receive a second life. Repurposing creates numerous new recycling jobs in the areas of project management, construction, trucking, logistics, warehousing, and marketing.

Additionally, these kitchens are offered for sale at a fraction of the price of new. Finally, proceeds from selling these kitchens supports innovative and life-changing outreach programs such as programs for at-risk-youth, addiction recovery, job creation, and social entrepreneurship.

It has been gratifying to work with industry leaders like Renovation Angel and see what multitudinous benefits accrue across the Triple Bottom Line:

  1. Environmental—diverting waste from landfills,
  2. Social—creating jobs and supporting nonprofits with proceeds from operations, and
  3. Financial—providing substantial tax savings in the form of non-monetary charitable contributions.

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