What are charitable use assets for private foundations?

Charitable use assets are assets held for use by a private foundation in carrying out its charitable programs, rather than being held for investment purposes. The purchase of a charitable use asset counts as a qualifying distribution for meeting the 5% minimum distribution requirement. Furthermore, charitable use assets owned by a foundation are excluded from the asset base for calculating the 5% minimum distribution. Common charitable use assets include computers, software, printers, telephones, and other office equipment. Charitable use assets can also include big-ticket items like real estate and vehicles but the factual use pattern must clearly show they are held for charitable use.

Whether an asset is held for charitable use or for investment purposes is a factual question. For example, a small office building used to provide offices for foundation staff engaged in managing grantmaking programs would be a charitable use asset. However, if the same office building was rented out to a third-party to produce income it would be held for investment purposes. If a given asset is used both as a charitable use asset and for investment purposes, a reasonable allocation should be made between the two categories. If the charitable use is at least 95% of the total use, the IRS allows the asset to be considered held entirely for charitable purposes (i.e., it is treated as 100% charitable use).

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