Charging any interest on a loan to a private foundation is self-dealing if you are a substantial contributor or another disqualified person. A low rate or…

Charging any interest on a loan to a private foundation is self-dealing if you are a substantial contributor or another disqualified person. A low rate or a market rate does not fix it.

The exception requires the loan to be interest-free, with no other charge, and the proceeds to be used exclusively for charitable purposes. The foundation can use the money, but you cannot charge it for that use.

Advancing the money as a genuine loan does not give you a charitable deduction. You still own the receivable. The foundation can later repay the principal in cash, or you can contribute the outstanding loan to the foundation by irrevocably forgiving the debt.

For a gift to an ordinary nonoperating private foundation, the deduction is generally limited to the lower of the loan's fair market value or your adjusted tax basis, subject to the usual deduction limits and substantiation requirements. Face amount is not necessarily value.

If the remaining loan has a $100,000 basis but is worth $80,000 when you contribute it, the deduction starts at $80,000, not $100,000. You have given up the right to collect the debt. You do not also get repaid.

This daily tax strategy looks at lending to a foundation and later contributing the loan.