Charitable Giving Insights

Contributing Real Estate to Charity

by Barbara Benware

For philanthropically minded investors, non-cash assets that have appreciated most in value can be among the most tax-advantaged items to contribute to charity. Donating such assets may enable the donor to potentially eliminate capital gains liability on the sale of the assets and enjoy a current year tax deduction, if the donor itemizes, while allowing the charities they support to receive the most money possible.

Many investors find that their most appreciated assets come in the form of real estate—a piece of raw land, an investment property or a vacation home—that has been held for a long period of time and could create significant capital gains taxes when sold. By donating such assets to a public charity (including a donor-advised fund account), they can potentially eliminate capital gains tax liability on the sale of the real estate, take a full, fair market value (FMV) income tax deduction, if they itemize, for the donation. Contributions of similar assets to a private foundation would generally be deductible, for those who itemize, at the lower of cost basis or fair market value.

Considerations include:

  • Real estate interests are generally appropriate to give to charity when a sale will enable the charity to convert the non-cash interest into cash. It makes the most sense to donate real estate that meets the following criteria:
    • The property has been held for more than a year and has appreciated significantly.
    • The property is marketable and relatively easy and cost-effective to liquidate.
    • The property is generally debt-free. (If there is debt on the property, the donor's contribution might be treated as a bargain sale to the charity, and the donor may be liable for certain taxes, e.g., capital gains.)
    • The owner is willing to transfer the property irrevocably to the donor-advised fund, which will negotiate the sale price and control the sale, often using an experienced intermediary.
  • If a sale is expected, the terms of the sale should still be under negotiation. The documentation must not have proceeded to the point at which the IRS would consider it a prearranged sale. That could result in the donor bearing the tax liability for any gain on the sale.
  • These criteria most often apply to donations of a primary or secondary home or other residential property held for some time. Commercial real estate may also be donated under certain circumstances. Such gifts involve additional legal and tax considerations.
  • Contributions of real estate to a charity or donor-advised fund account are generally deductible, for those who itemize, at fair market value—as determined by an independent qualified appraiser—on the date of contribution, whereas contributions of real estate to a private foundation are generally deductible, for those who itemize, at the lower of cost basis or fair market value.

Case Study—Contribution of Real Estate

New Hampshire vacation property worth $1,000,000. It is owned by a Living Revocable Trust, with no associated debt. Client, who is very charitably inclined and wants to involve family across the generations, seeks advice from an advisor.

  Sell property and donate proceeds to charity Donate property directly to charity
Asset Value

$1,000,000

$1,000,000

Capital Gains (100% Long-Term)

$900,000

$900,000

Sales Price

$1,000,000

$1,000,000

Taxes Paid

$214,200

$-

Settlement Costs

$60,000

$60,000

Gift to Charity

$725,800

$940,000

Charitable Deduction

$725,800

$1,000,000

Donor Tax Savings§

$268,546

$370,000

Learn More

For more information about the potential advantages of contributing real estate to charity and for a detailed consultation about your specific situation, please contact us.

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