Donating Real Estate To Charityby Bryant Asset Advisors on 04/18/13
What donors and charities need to know
As planning begins for 2013 taxes, individuals and corporations might consider making a real estate donation to a charity in order to claim that property’s value as a deduction. Donating real estate to charity has numerous benefits for the charity and donor, but it remains one of the most underutilized donations in the U.S. Only 3% of the $300,000 billion in assets given to charities each year involve real estate equity. Yet, 43% of the $64 trillion in U.S. capital involves real estate.
Why Donate Real Estate?
Obviously, a gift to a worthy charity that serves your community in times of need is a great reason to donate your real estate asset. But, donating real estate can also benefit the individual or corporate donor. Whether it’s relieving the burden of property ownership or claiming a tax exemption, donating real estate can prove very lucrative for the donor.
Real estate donations or gifts are great options for individuals or corporations sitting on assets that are difficult to sell. Instead of continuing to attempt to sell the asset for market value, the individual or corporation can donate the asset to charity and gain tax benefits while expediting transfer of the property. Additionally, for corporations, gifting difficult-to-move real estate could prove the best option from an economic, timing, and public relations standpoint.
How to Donate Real Estate to Charity
There are a few options to consider when donating real estate assets to a charity. The strategies outlined, below, are detailed along with their benefits
1. An outright donation. By donating the real estate outright, the donor can claim a full tax exemption for the appraised value of the real estate holding. In this scenario, the donor also has full control over the timing of the asset disposal and title transfer.
2. Bargain sale. A person selling a real estate asset can sell it to a charity for a much lower cost than its appraised value. The difference between the market price and the actual sales price can then be claimed as a tax-deductible gift.
3. Charitable remainder trust. This tax-exempt, irrevocable trust can be used by a donor transferring a real estate asset. The charitable remainder trust can be used as a funding source, as the donor will receive an income stream from the trust. And when the trust is terminated, the charity receives the remaining assets. It’s a win-win for both parties. The donor receives an income stream, is exempt for capital gains taxes, and receives a tax donation. The charity in turn receives a valuable donation.
The most important part of the donation process is performing proper & thorough due-diligence. 80% of real estate donations are turned down by charities, and for good reason, as CCIM’s Duncan Patterson observes. Take the infamous Boy Scouts of America case. The Boy Scouts accepted a real estate donation of an environmentally impacted tract of land outside of Chicago. Ultimately, the land ended up costing the BSA millions of dollars.
This type of debacle can be avoided by enacting proper procedures on both sides. Gifting of real estate is not like a standard real estate transaction. Basic legal representation is not enough. Donors should enlist a team that includes an attorney, an accountant, a financial planner, and a certified appraiser. The gift recipient organization should also retain the same professionals, as well as engineers and other specialists that can help to fairly assess the real estate’s value and possible liabilities.
Often, charities do not have the time or resources to devote to such a major transaction. In situations like this one, the CCIM Institute can act as a third-party resource representing the best interests of the charity. The CCIM is itself a 501(c)(3) and can manage all aspects of the donation for the charity.
Regardless of the donation method, an accurate and thorough appraisal by a certified appraiser is vital to ensuring a fair, low-risk donation. With offices in Indiana and California, Bryant Asset Advisors is equipped to assist charities and donors in Indiana, California, Michigan, and Ohio. Contact us today for a free consultation.
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