I’m a little behind on this one, since the court case was determined back in February, but I’m sure there are plenty of eager readers who missed the final ruling of Rolfs v. Commissioner, 668F.3d 888.
So here’s the overall concept: you can’t take a tax deduction for burning down your house.
The story goes that back in the day someone came home to find his wife cheating on him. To get revenge, he tried to burn her stuff on the stove. The fire jumped to the drapes, then, in a heated passion, tore through the rest of the house. The accidental arson tried to deduct the destruction of his home as a casualty loss, but the judge rejected the deduction.
Hopefully he got at least half of the ashes in the divorce.
Fast forward to closer to today. This guy Rolfs really wants a bigger home. He knows he can’t deduct his home as a casualty loss if he purposely burns it down, so instead he “donates” it to the fire department to use as a training exercise. The department doesn’t get the land or anything else, just the ability to burn it down like a bunch of Boy Scouts whose leaders have wandered off.
Once the deed has been done, Rolfs tried to deduct as a charitable contribution the difference between the value of the house before the fire and after.
The judge ruled that no deduction was allowed, since the house was a piece of garbage that no one would have purchased without the land, and because Rolfs got free demolition services.
Rolfs appealed, but Judge #2 wasn’t persuaded either.
If I were the IRS, my argument would have been much simpler than the long gamut of experts they ran through: the guy got to burn down his house for free! No losing his stuff, no co-pays or deductibles, no sorting through the wreckage. That’s worth more than his deduction right there.