The Truth Behind Real Estate Donations to a 501c3 Charity

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donating a house

A lot of people are shocked at the fact that anyone in their right mind would donate their property.

The easiest and most popular way to donate real property is called a direct gift.

The transfer takes place between the donor and the nonprofit organization/charity. Once the transfer takes place, the donor gets a tax deduction equal to the fair market value of the property.

This deduction can be either substituted the same year or over the next five years on the donors tax write off.

In order for the donor to receive this tax deduction, he must donate the real estate to a IRS recognized 501c3 type charity.

The truth is that this is one of the most unused methods to get the most out of your tax deduction.

What Makes it So Good?

When you donate cash, you still have to pay taxes on the earned cash.

The same would go for selling the property.

You are obligated to pay taxes on the cash earned and you can only claim the tax deduction on what’s left.

Donating real estate is different because you avoid paying this “capital gains tax”.

Your tax break is then calculated based on the FMV (fair market value) of your property.

What’s Considered a 501(c)(3) Charity?

It’s one of the dozens of different 501c nonprofit types in the US.

For a charity to have a 501c3 status it must fall under one of the following categories:

  • Religious
  • Scientific
  • Educational
  • Testing public safety
  • Sports (limited to certain criteria)
  • Social work (child, women or animal abuse)
  • Community funds
  • An organization that’s made to cooperate or associate exclusively to support the above

This type of organization provides a federal income tax deduction.

Read more about 5013c organizations here.

What Types of Donations Are Accepted by 501(c)3 Charities?

A list based on the IRS website.

  • Cash
  • Personal items
  • Vehicles (cars, boats, RV’s, aircrafts and more…)
  • Art
  • Jewelry
  • Stocks
  • Real estate
  • Patents

Checklist Before You Decide to Donate

  • Find a charity with a 501c3 status – 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.

In order to protect yourself, you need to find out if the charity is legit. You can do that through the state consumer protection or the better business bureau.

Make sure to find out the legal name of the charity. Watch out for fake charities using very similar names to disguise as the one you are looking for.

If anyone is trying to pressure you into a deal, don’t let them.

Avoid paying with cash. Always try to use checks or a credit card.

  • Consult with the appropriate charity, accountant or someone who could provide professional advice
  • You need to fill out the 8283 form (if the value of your donated property is over $5,000 then you will also need a professional appraisal attached to your tax return)
  • Make sure to find out how much you will be able to deduct, whether you want the deduction at once or spread out and what’s the highest and lowest amount your property would be worth on the market
  • Always make sure to keep record of your charitable donations, large or small as they may add up