Giving Real Estate To Charity
Kadir P. Sunardio
Whether driven purely by charitable motivations or because you simply wish to divest yourself of nonproductive assets, you have several options available for giving real estate to charity. Each option can produce a charitable tax deduction and help you avoid taxes. Some options could even leave you with an income stream for a period of time.
As the name suggests, outright gifts transfer ownership to the charity immediately. Such a transaction does not trigger capital gains taxes.
To claim the charitable tax deduction based on the value of the property, you must obtain a valuation from a qualified appraiser, no earlier than 60 days before the date of the donation. If the donation exceeds $5,000, the charity must acknowledge receipt of the property on the applicable tax form.
Bequests are not immediate, instead occurring only after your death via a will. A bequest can be:
- Specific — for example, it identifies a specific piece of property for a specific charitable beneficiary
- Contingent — it occurs only if a condition, such as the spouse predeceasing the donor is met, or
- Residual — the charity receives a portion or all of what remains in the estate after other bequests, debts, expenses and taxes are paid out
You can also sell the property to the charity at less than fair market value in a “bargain sale,” which is partly a charitable contribution and partly a sale. The difference between the fair market value and the sale price is the contribution, for which you get a charitable deduction. However, the sale part of the transaction might result in a taxable gain. The sale part of the transaction is the difference between the sale price and your cost basis in the property. If you sell the property for less than your cost basis, you can not claim a loss.
Several arrangements will allow you to receive an income stream, including retained life interests, charitable gift annuities and charitable remainder trusts (CRTs). With a CRT, you deed the property to an irrevocable trust and receive an income stream for your life or a term of years. Upon your death, the charity assumes title to the property.
The Ideal Real Estate To Give To Charity
In order for the real estate donation to be mutually beneficial for the donor and the recipient (the charity), the subject property should ideally possess the following characteristics:
- It has a long-term appreciation
- It is debt-free
- It is not currently under contract
- Its carrying costs are not substantial and it is relatively easy to liquidate or lease
- It will not trigger unrelated business taxable income for the charity
The appropriate donation vehicle will depend on your individual circumstances and goals. Giving real estate to charity may seem simple. But, you need to plan carefully to maneuver around all the tax traps that can quickly eliminate the tax benefits resulting from your donation. If you are interested in giving real estate to charity, please make sure to contact Kadir Sunardio at 312.670.7444 or [email protected] before entering into any agreements.