Real Estate Donation 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.
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Getting Started

Donating property carries with it many personal, tax, and financial benefits. You help a charitable cause while also becoming eligible to receive tax deductions based on two factors which will be discussed below.

1) Are You Eligible?

To be eligible for a tax deduction, the donation must be made solely for charitable or public purposes by an individual who will itemize deduction and it must also be made to an organization that has a 501(c)(3) designation from the IRS.

2) Choose The Type of Donation That's Right For You

After determining your eligibility, you must then decide what type of donation makes the most sense for your situation. 

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.

3) Property Value and Donation

Your property’s value, in terms of a tax deduction, is measured by the fair market value (FMV) or the cost basis of the property at the time of donation. Fair market value is the price at which the property would sell for on the open market whereas cost-basis is the original price at which the property was sold.

A real estate donation qualifies for an income tax deduction based on the fair market value (FMV) or the cost basis of the property. The deduction will depend upon whether the real estate is a short-term asset (held less than 1 year) or a long-term asset (held more 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.

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. Donors may carry forward a real estate deduction for up to five years.

For property worth $5,000 or less, one may use the fair market value, as determined by comparable sales. For property worth more than $5,000, it must be appraised by a qualified appraiser.

FAQ

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.

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.

Additional Information