We all easily grasp the age-old strategy of buying real estate when prices are low and selling the real estate when prices are high. That’s part of the American way. But few of us consider the benefits in donating the real estate to a qualified charitable organization. Why would someone donate a property rather than sell it? Let’s consider some of the reasons:
- The property owner has always wanted to leave a legacy, a donation that would help others for many years into the future.
- A tax write-off would benefit the owner.
- The property is fully depreciated and a sale would trigger recapture of the depreciation already taken resulting in a huge IRS tax payment due following a sale.
- The owner wishes to set up a remainder trust that benefits both a charity and the owner’s heirs.
There are many reasons why a property owner would consider donating a property rather than selling. The greatest benefit may be the receipt of a tax deduction of up to the highest appraisal value on the property. The good feelings garnered from making the donation may also be a prime benefit.
What are the steps necessary to complete a successful donation? First, it will be important to hire competent tax and legal assistance. The donation will need to comply with the rules of the IRS as well as local and state laws. It may also be important that the donated property has been owned for greater than one year so that long-term capital gains are involved. Many times, a partial donation, that is, a donation of a part of a larger property may not qualify as a charitable donation under IRS rules.
Second, after you have hired tax and legal expertise, it will probably be necessary to have the property appraised to determine its current fair market value. The IRS will require that a qualified appraisal is completed on the property and they will further require that the property has a fair market value of $5,000 or more.
If you haven’t considered who the recipient of your generous donation should be, the next step may be to select the charity that will benefit. It is important that the charity you desire to help also wishes to accept your donated property. Many local non-profits could benefit from real estate donations. They include the Red Cross, Hilltop Health Services, the School District 51 Foundation, local Rotary, Kiwanis or Lions club foundations, Goodwill Industries, Community Hospital, St. Mary’s Hospital, various programs that operate in conjunction with the VA Medical Center, the United Way, and many other non-profit 501(c)3 organizations, to name a few.
As this is the season for giving, perhaps a gift of real estate will aid you and your family now, or in the future. Season’s Greetings to you all, and may your real estate holdings bless you and your family this holiday season.