House Blackboard and Family Wood and Gold Coin With Grow Interest and Key and Red Heart in the Public Park

The average person will most likely overlook the possibility of donating real estate to charity. It’s a shame, because real estate is an extremely powerful giving asset, and donating it to charity can help such an organization quite a lot. Of course, in many cases, potential donors do not even know that it is fully possible to donate land to charity. That said, let’s explain why and how to donate real estate. Regardless of whether it is your own, old family home, a rental property, or just some undeveloped land – donating real estate to charity is always worth it.

How to Donate Real Estate to Charity?

If donating property to a nonprofit seems reasonable to you and you are interested, you should know there are a couple of ways to complete this process. In this article, we will focus on the three most popular ways to donate land to charity. That way you can decide which is right for you.

Bargain Sale

What is a “bargain sale”? It’s the act of selling the property to a charity for much less than the property’s market value. This option, as you can guess, also allows you to make some extra money thanks to your donation – although it won’t be much, we believe it is important to note this fact.

For many people, this will be the incentive to pick this option over the two which we are yet to mention. Please, kindly remember, however, that you will be taxed on your gain. You may, however, ask for a real estate donation tax deduction, which will be equal to the difference between your property’s market value, and the price you sold it for. If you wish to donate real estate and also receive some extra income, a bargain sale may be the right option for you. 

Direct Gift

A Man and Women Hands Hold a House Made in Wood for Family Concept in the Public Park.

Of course, you can always opt for donating real estate to charity as a direct gift. It is by far the quickest method of charity real estate donation process. In this case, the deed or title will be smoothly transferred from you to the charity, without any unnecessary paperwork.

As the donor, you will also be eligible for a real estate donation tax deduction. This deduction will be equal to the fair market share of your property, and it may be carried forward for five whole years. You also avoid the Capital Gains Tax, which you would have to pay if you decided to sell your property instead.

Charitable Remainder Trust (CRUT)

Well, CRUT is definitely the most complicated way of donating property to a non-profit, but if you are a donor with highly valuable property, this will actually be the perfect solution for you. You can donate land to charity while at the same time preserving the future income for your children and grandchildren.

Distribution from CRUT to the beneficiary (the charity organization of your choosing) is determined based on a fixed percentage of the value of the property – but not less than 5% – every year. This assures that the charity organization you choose will receive a percentage of the value of your property each year, instead of just receiving 100% immediately.  

After creating a Charitable Remainder Trust, the Donor (that is you) is eligible to receive a real estate donation tax deduction. Keep in mind, however, that the value of this deduction cannot be bigger than the present value of the remaining interest which will be, over time, transferred to the beneficent.

If you believe CRUT will be the best option for you, we recommend you contact a financial or legal advisor. There are many factors you need to take into account when starting a CRUT, and, because of how complicated this process may be, you will need professional help setting a CRUT up.

What Are the Benefits of Donating Property to a Non Profit?

By donating your real estate to charity not only do you commit a noble deed, but you also get to enjoy a vast variety of benefits, which would be non-existent if you decided to just sell your property instead. Let us now take a look at a list of the benefits you can expect; these are not all of them, mind you, but the following will be most interesting to an average person:

  •    No capital gains tax – if you were selling your real estate, you would be required to also pay the capital gains tax. Luckily, when it comes to charity real estate donation, there’s no such requirement. No matter how big or how luxurious your property may be, you won’t need to pay this tax.
  •    Charitable income tax deduction – not only do you not have to pay the capital gains tax, but you will even receive a charitable income tax deduction, based on the market value of your property.
  •    If you choose to start a Charitable Remainder Trust, you can increase your income for retirement.
  •    You can enjoy all the advantages of a private foundation
  •    Most importantly, you’ll make a great philanthropic impact. Your charity real estate donation will change many people’s lives for the better, and they will no doubt remember your name.
  •    You’ll be able to establish a personal legacy for yourself; something both you and your future kids and grandkids will be proud of.

Woman Hand Hold a Wooden Home Model and Money Bag Put On the Scales With Balance

What to Pay Attention to When Donating Real Estate to Charity?

Donating anything, let alone real estate, is a very noble thing to do, however, we do recommend you pay attention to what you are doing. It’s easy enough to fall for scams, so above all else, always check if the charity organization you wish to donate to really is a legit charity organization. Moreover, there are certain conditions you need to meet when donating a property.

If you wish to donate real estate worth over $5,000, you will need a qualified appraisal of the property in order to make the transaction legal and valid. If the total worth of the real estate you wish to donate is more than $500,000, you also need to attach your tax filing together with the appraisal.

If you wish to donate a property that is subject to a mortgage, remember that this will cause recognition of income to you, as a donor, and apply the usual rules of a bargain sale. You should also know that even if you pay the mortgage after donating your possession to charity, the taxable income will still be recognized.

Finally, please be aware that your tax deduction will be reduced in the case you have claimed accelerated depreciation on the property you wish to donate to charity. The amount of this reduction is based on how much depreciation you have taken, and by how much it exceeds the maximum depreciation allowed when the simple line method is applied. Another similar concept is the ordinary recapture, which occurs on a gain from the sale of the property where accelerated depreciation was claimed by the owner.

If you’re looking to donate a property/land to charity, we at Habitat for Humanity of Broward invite you to get in touch with us and further check information on the matter on our website. Of course, you don’t need to have a property or land to donate in order to join our cause. At Habitat for Humanity of Broward, we accept various donations as well as volunteers to better the community and people’s lives.