GIFTING REAL ESTATE TO A CHARITY
"There Are Many Tax Benefits For Donating Your Real Estate To A Charity of Choice.
There are five strategies listed below:
1. There are several strategies for giving your property away and obtaining beneficial tax treatment. An outright gift is easily accomplished and provides the maximum and earliest financial benefit for the charity, while providing you with the maximum tax benefit. You can deduct the gifted property’s full appraised value against 30 percent of your adjusted gross income. If you are unable to use the entire deduction in one year, you can carry that deduction forward for an additional five years.
2. Another strategy is the “bargain sale.” A bargain sale is when you sell your property to the charity at a price below the property’s appraised fair market value. In return, you can take a charitable deduction for the difference between the sales price and the appraised value. That deduction from this gift portion can often be used to offset the exposure to capital gains tax on the property’s sale portion.
3.If you wish to sell your property but do not wish to donate it all, there is another option to receive charitable benefits: You may donate an undivided fractional interest in your property to a charity, at which point, typically, you and the charity cooperate in marketing and selling the property. At the closing, net sales proceeds are distributed to you and the charity based on the respective ownership shares. You are entitled to a charitable deduction based on the ownership percentage you donate (sometimes adjusted to reflect the minority discount rule that provides that a minority interest is worth less than a majority interest). Since this strategy does not require the charity to come up with upfront cash to purchase the property, it is often the charity’s preferred strategy vs. the bargain sale.
4-5. There are even strategies that will allow you to donate your property, receive the charitable deduction and an income stream for life. These strategies utilize a charitable gift annuity (CGA) or a charitable remainder unit rust (CRUT).
Your income stream is based on several factors, including your property’s appraised value, the expected net sales proceeds realized when the property is sold, your age, your life expectancy, and the prevailing interest rate discount factor that takes current market interest rates and the money’s time value into consideration.
CRUTs vary slightly in that they are established by placing your property in a trust, then selling it to establish an asset on which a fixed percentage is paid to you for life. A percentage, these days, typically 5 to 7 percent, is then paid out to you for your lifetime or for as many years as you select.
These strategies can be combined into hybrid strategies to customize the donation to suit the donor, the charity and to assure strict compliance with the detailed IRS rules and regulations, You can even retain a life estate allowing you to live in your property for life and still complete a tax advantaged gift.”
Harvey S. Jacobs is a real estate lawyer. He is an active real estate investor, landlord, settlement attorney, lender and associate real estate broker. This column is not legal or tax advice and should not be acted upon without obtaining your own legal counsel
If you would like more info on this subject or you are interested in getting more information how you can make a charitable gift of real estate to our nonprofit organization and receive one or more of the tax benefits mentioned above, please contact me to discuss this matter and we can provide you with professional consultation.
Dr. Duane Chassie,
President & Founder, APCH