Charitable contributions of real estate are a great way to give back to causes you care about. Here are three benefits to giving real estate.
For those of you who own real estate, there may come a time when you no longer need or want your property or want to downsize to a smaller residence. You may own rental property and wish to exit that business, while others may wonder what to do with the family cabin or farm when it is no longer in use.
Selling is almost always the first idea that comes to mind, but it isn’t the only option. Charitable contributions of real estate are a great way to give back to causes you care about.
According to the US Census, real estate accounts for about 30% of the value of American wealth. Despite making up a significant amount of the country’s capital, it represents less than 2% of charitable dollars given each year. One of the primary reasons for this imbalance is that many overlook the value of making non-cash assets a part of their giving plan.
You might be more likely to write a check or give online with a credit card than to consider donating property such as a cabin or condo. But recently, people have begun to think more about making contributions of wealth – not just cash.
How to Donate Real Estate
At the Saint Paul & Minnesota Foundation, we recently experienced an increase in gifts of real estate. As these charitable contributions become more common, the Foundation has helped many donors give rental properties, primary residences and vacation homes.
By donating their real estate to the Foundation, these donors were able to have their properties sold tax-free, liquidated and then completely allocated to their donor advised fund or DAF. This allows donors the benefit of supporting multiple organizations with their gift.
Three Benefits of Donating Real Estate
Real estate is one of the most financially beneficial types of gifts for donors. Capital gain assets, like real estate, receive special tax benefits when donated. The charitable income tax deduction is based on the fair market value of the property at the time of the gift.
1. Receive an Income Tax Deduction
You may have purchased the property many years ago for much less than it is worth today. That means that you may be able to take advantage of that appreciated value in the form of an income tax charitable deduction. Furthermore, when the property is contributed, the capital gain on the appreciation is bypassed. Not all assets receive this special tax treatment when donated, which makes a gift of real estate even more effective.
2. Leverage a Charitable Remainder Trust
You may want to use a piece of real estate for charitable giving, but still need to receive some of the value from the property for your personal use. In situations like this, you can contribute the property to a Charitable Remainder Trust (CRT). The CRT sells the property tax-free and uses the proceeds to make annual payments to you and/or someone else you choose.
Payments can last for your lifetimes or a period of years. When the payment period is over, the remaining value in the CRT is transferred to a DAF to benefit your favorite charitable causes. At the time the property is transferred to the CRT, you can receive a charitable income tax deduction. The deduction amount is the value expected to go to charity at the end of the trust term.
3. Work with a Trusted Partner
The Foundation can act as a trustee. We manage the sale of the property, the investment of the trust assets, payments to the trust income beneficiaries and all the necessary tax reporting.
While many nonprofits aren’t equipped to accept a complex asset such as real estate, the Foundation is able to serve as their partner. Our staff will work closely with you, whether you are a donor or advisor, to help determine what assets may be the most beneficial to give.
The Saint Paul & Minnesota Foundation does not provide tax, legal or accounting advice. Please consult your own tax, legal and accounting advisors regarding your individual situation before engaging in any transaction.
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