Real Estate Gift Programs
Ways To Donate
Five Popular Ways to Donate Real Estate
There are many ways to gift real estate to a nonprofit organization or educational institution. Five popular ways to donate real estate, along with their corresponding benefits, are detailed below. The method selected will reflect a donor’s personal circumstances and objectives.
Outright Gift
The donor makes an outright gift by transferring ownership of the real estate to the organization.
Possible Donor Benefits:
- Donor gets a charitable tax deduction for the full appraised value of the property
- Donor avoids capital gains taxes
- The property is removed from the donor’s taxable estate
Example: Mrs. Smith owns a house that cost $100,000 and is now worth $300,000. She makes an outright gift of the house to the organization, gets to take a charitable tax deduction of $300,000 and she avoids paying capital gains taxes. In addition, the property will not be part of her taxable estate.
Charitable Remainder Trust
A Charitable Remainder Trust is established with the proceeds from the sale of a donated property. The trust provides an annual payment to the donor and spouse for up to 20 years.
Possible Donor Benefits:
- Donor receives an annual income
- Donor gets a charitable tax deduction for a portion of the property’s value
- Donor avoids some capital gains taxes
- The property is removed from the donor’s taxable estate
Example: Mr. Jones, 72, donates a piece of land, which the trustee of the Charitable Remainder Trust sells for $500,000. The proceeds are received and invested by the Charitable Remainder Trust. Mr. Jones receives an annual payment of $20,000 and a charitable tax deduction of $200,000.
Retained Life Estate
The donor transfers ownership of the property, often a home, to the organization, but retains lifetime use of the property.
Possible Donor Benefits:
- Donor and spouse can live in the donated property for life
- Donor gets a charitable tax deduction for a portion of the property’s value
- Donor avoids some capital gains taxes
- The property is removed from the donor’s taxable estate
Example: Mrs. Johnson donates her home to the organization, but continues to live in it. She receives a charitable tax deduction and avoids some capital gains taxes. On her death, the organization sells the home. The property has been taken out of her taxable estate, thus reducing inheritance taxes for Mrs. Johnson’s heirs.
Bargain Sale
A bargain sale results when a donor sells real estate to the organization for less than its fair market value. This method of giving is often used for properties with an outstanding mortgage or for properties that have been owned for less than 12 months.
Possible Donor Benefits:
- Donor gets a charitable tax deduction for a portion of the property’s value
- Donor avoids some capital gains taxes
- The property is removed from the donor’s taxable estate
Example: Mrs. Rogers sells a multi-family home to the organization for $180,000, the price she paid for it years ago. At the time of her gift, the property is worth $400,000. Her charitable contribution is $220,000 – the difference between the current value and the sale price. Her capital gains taxes are reduced and she receives a $220,000 charitable tax deduction.
Bequest
The donor leaves a piece of property to the organization in a will.
Possible Donor Benefits:
- Donor and spouse can continue to life in the property for life
- The property is removed from the donor’s taxable estate
Example: Mr. Parson bequeaths the home he has lived in for 30 years to the organization. Upon his death, the property is given to the organization, which sells the property and uses the proceeds as he directed.
Note that the examples above are based on applicable federal tax regulations, which can change, and a number of simplifying assumptions (e.g., that the property involved would generate long term capital gains). Donors must consult with and rely exclusively on their own legal and financial advisors about their gifts and the legal, state and federal tax implications.
