Real Estate: An Untapped Source of Charitable GivingSubmitted by Durbin Bennett on May 23rd, 2016
In a challenging economic climate, many donors are wary of making large donations of cash, even to charities they would otherwise like to support. Nonprofits are therefore increasingly encouraging donors to make gifts of non-liquid assets, including real estate. When thoroughly screened and properly structured, real estate gifts can help donors meet their financial planning and philanthropic goals, while providing charities with a fresh source of funding.
Although real estate holdings make up a significant share of the assets for U.S. households, only a small proportion of charitable contributions take the form of land or buildings. Many people who own surplus real estate may prefer to donate their appreciated property to charity rather than sell the property themselves, especially if their goal is to minimize taxes or generate retirement income. Because real estate gifts are more complex and costly for charities to process and manage than cash donations, nonprofits considering real estate gifts should have a clear set of gift acceptance policies and procedures in place that protect both the nonprofit and potential donors. Here locally, the Austin Community Foundation accepts real property along with many more additional asset types: http://www.austincf.org/DonorsFundholders/DonorsFundholdersWhyWorkWithUs/TypesofAssets.aspx
Policy guidelines by the charity or foundation may, for example, outline the types of properties that will and will not be accepted, such as residential, commercial, or undeveloped land. The types of estate planning structures that donors may use when making these gifts should also be stated, such as charitable remainder trusts, charitable gift annuities, and retained life estates. In addition, a minimum gift amount should be set accounting for the costs of processing real estate gifts, and stipulating whether the nonprofit will accept properties that come with mortgages or other risk factors.
After a real estate gift has been approved on a preliminary basis, the donor may then be asked to provide more complete information about the property. This due diligence phase generally includes an investigation of the title with the help of a real estate attorney, assessments of the local market and environmental conditions, a professional inspection, and a site visit by the nonprofit representative. Typically, the nonprofit receiving the gift will cover the costs of conducting these studies. After the due diligence has been completed and the charity has agreed to accept the gift, the donor should be notified of the findings of the investigations, and of plans for how the final transfer of the property will occur.
Tax benefits of giving real estate to philanthropic causes include:
- Potentially eligible to take an income tax charitable deduction for the full fair market value of the donated property — up to a maximum of 30% of your adjusted gross income (AGI) for contributions to public charities. (Any amounts in excess of the 30% limit can be carried forward for up to five years.)
- Minimize estate taxes
In the end, of course, these tax advantages for individuals also have the effect of benefiting the charitable grant recipients: the capital gains savings are transferred directly to the charitable beneficiaries. If you are looking to maximize the power of your charitable contributions — to make a single asset make more of a difference to the charitable causes you care about — consider donating your long-term appreciated real estate.
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. This material was developed and produced in part by Financial Media Exchange to provide information on a topic that may be of interest. Copyright 2014-2016 Financial Media Exchange.