This guide will teach you everything you need to know to donate your real estate and get a tax deduction.
Find out about whether you are eligible for a tax deduction, what type of donation is right for you and how the valuation process works.
Donating real estate can be confusing.
Taxes are even more confusing.
There are many laws and general confusion around this process.
The process is actually very simple for the donor but the lingo, numbers, and documents can make things confusing.
We compiled a list to help you strategize your donation to work for your tax deduction.
It’s a bit complicated but in general, yes, your donation will be tax-exempt.
Complications arise from the different ways real estate can be donated.
The process is easy for the donor but a reputable party should be involved to make things right for you.
The IRS states: “The federal tax code allows individuals and businesses to make noncash contributions to qualifying charities and to claim deductions for these contributions on their tax returns.”
There are however rules and regulations that need to be accounted for.
The main factors to be tax-exempt:
If the property is more than $5,000 then you need a qualified appraisal. If the appraisal is not qualified then you may not be tax-exempt from donating your property.
Not of the cash value received from selling the property.
If cash was received and then the donation is made with the proceeds (and not the property) then that cash value is subject to a capital gains tax.
A charitable receipt from one of the qualified organizations listed above is not considered as a “cash donation” after the property was sold.
The use of the property, the whole property, half of the property, will the property still reap the reward for you? etc…
These are also key factors in you being tax-exempt.
More information can be found on publication 561 in the IRS website.
In most cases, not only will your donation be tax-exempt but you will also benefit from a tax deduction.
To sum things up, the process is easy for the donor but the receiving end must be a qualified organization that can accept the donated property.
Our charity can help you donate real estate fast, free, and with zero headaches for you.
Checking whether your real estate donation is eligible for a tax deduction is a mandatory step before moving forward in the donation process.
For a real estate donation to be eligible for a tax deduction, it must be made solely for charitable or public purposes by an individual who will itemize deduction.
This is the value that you will claim against the value of your donation.
This value will allow you to pay less on your adjusted gross income (AGI) which will downsize the tax you owe to the IRS.
It’s one of the dozens of different 501c nonprofit types in the US.
This type of organization provides a federal income tax deduction.
Read more about 5013c organizations here.
Make sure to not fall into the trap of thinking that every donation is tax-deductible.
Only a charity with a 501c3 status could grant you a tax-deductible receipt.
Even a legitimate charity without this status cannot provide you with a tax deduction.
A database of tax-exempt organizations has been set up here to help you with your research.
Beware of charity scams.
There are organizations out there that pretend to be charities but they are not legal.
Always make sure to keep a record of your charitable donations, large or small as they may add up
Donating property carries with it many personal, tax, and financial benefits.
This is a tax you have to pay for any income.
You would have to pay this tax by selling the property.
You will receive the full value of your property in tax returns.
You can carry these returns over for 5 years.
We help educate you and your accountant while helping with all necessary documentation and filing.
Tax benefits of donating VS selling AND THEN donating (proceeds):
You will have to pay taxes on the “cash” earned.
Tax return and no taxes are paid.
After determining your eligibility, you must then decide what type of donation makes the most sense for your situation.
Each one of these ways to donate affect your tax deduction.
The deed or title is transferred from you to the charity to which you donate. You will then receive a tax deduction equal to the fair market value of the property and that deduction may be carried forward for up to five years.
If you sell your property for less than its fair market value to a charity, then the difference between the fair market value and the sale price is considered a donation.
As with other types of financial trusts, a CRT contains property assets where a portion of the trust’s value is distributed each year to one or more beneficiaries for a term of years or for life. At the end of the term, the remaining CRT assets are distributed to the charity.
A CGA allows you to make a contribution and, in return, receive fixed annual payments for life from the charity. A CGA also allows you to claim a partial income tax deduction for the year of the contribution.
This allows you to transfer the ownership of your property to a charity, receiving a tax deduction based upon your and your spouse’s age and the value of the property, while retaining the right to use the property for life.
If the deduction claimed is $5,000 + you need a qualified appraisal.
This appraisal could be made through a qualified organization.
The appraisal is the fair market value (the price the property would sell for).
If there is a part/function of the property that you don’t want to donate, the price would have to be determined without that part/function of the property.
This is the cost or adjusted basis in the donated property.
It’s important to note that there is no fixed rule for getting fair market value.
Especially for real estate.
There are no magic formulas to generate this value easily.
The person doing the appraisal must be well versed in the principles and theory of determining the right value.
The report needs to have the full picture (description, measures, legal, location, condition, etc…). Usage now, potential usage, permits, restrictions, etc…
This will depend on a few factors.
Held less than 1 year.
short-term assets qualify for a deduction equivalent to the lesser of the property’s fair market value or its cost basis.
Held more than 1 year.
Long-term assets qualify for a deduction based on the fair market value of the property or donors can elect to leverage the cost basis rather than the FMV of the property.
The IRS is STRICT.
There are so many times where a person fills everything out, everything looks GUCCI, and then BOOM.
He got way less than he expected.
There are a ton of nuances and bureaucracy (which no one likes).
With the impatience to get things done and not have to deal with so much, oftentimes, you can really lose out.
Get yourself a good tax advisor or contact a charity that accepts real estate like us.
If you care about your return…
For example, if you valued the property at less than what it’s worth. You lost.
If you are overpriced…You will pay taxes and not just taxes.
After donating my real estate, when do I get a tax deduction?
Once you’ve made the donation, you will receive a receipt from the charity to include in your tax returns for the year. If your property is over $5000, you will also need to include a formal appraisal. By donating, we make sure that the process is as hands-free for you as possible. Contact us for more information.
Which type of donation should I choose to maximize my tax deduction?
This depends on factors such as: your property’s fair market value and cost basis, optimal tax deduction, and your general financial situation. Contact us for further assistance.
“Why in the world would anyone donate their property?” This is the first thing that popped into my mind when I heard about real estate being donated by middle-class working Americans.