Your Open House on Gifts of Real Estate

Words such as “impact,” “difference,” and “change” are often used to describe a charitable gift. While these words, though seen frequently, are valid, rarely are they fulfilled more meaningfully than through a gift of real estate to the nonprofit you cherish most.

Surprisingly, giving this type of gift is a straightforward process and can genuinely transform the programs supported by your favorite nonprofit. The unique benefits of a real estate donation, such as the charitable tax deduction and overall savings, can make the gift much more appealing and less expensive than you may assume.

Welcome to the Open House on charitable gifts of real estate: Let’s take a tour!

What is a Gift of Real Estate?

Welcome to the front door. Before we enter, we need introductions to this gift type.

What is a gift of real estate? A charitable gift of real estate involves donating property, such as a home, commercial building, or land, to a nonprofit organization. To make this gift, you transfer real estate ownership to the nonprofit rather than selling it to an independent buyer. You bypass the selling process and make your impact immediately. You earn an immediate charitable income tax deduction as well. Your deduction will be the fair-market value of the real estate, determined by a third-party qualified property appraiser.

Who are you, as the donor? Anyone can make a gift of real estate as long as the nonprofit’s gift acceptance policy allows it, and the property is in marketable condition; ideally free of debts. The real identity of the gift is what you are contributing and how a nonprofit can use it to fulfill your charitable aspirations. A gift of real estate is substantial and is a major opportunity to reflect on what cause you want to be furthered in your name by your generosity. Discussing options for the gift with the nonprofit you select can be a creative process and help you realize your dreams of a better world.

Also on your tour: Elvis and Priscilla. They don’t have much money in the bank, but they love the work of Charity USA and want to make a gift to help Charity’s critical mission. They joined the tour because they have a vacation condo that none of their kids use, and they hardly use it themselves. They also have some office space they were renting out, but they aren’t making much profit and don’t consider it worth the effort of owning. They’d like to learn if they can turn these properties into something that benefits others.

What Does this Gift Mean to You?

It may seem strange, but the next stop is the roof to gain a heightened perspective on what this gift means to you, the donor.

Gifting real estate to a nonprofit can be a meaningful way to make a significant impact while gaining financial benefits. As a donor, consider donating property you no longer need, such as a second home, commercial property, or undeveloped land. This gift can provide substantial tax benefits, including a charitable deduction for the property’s fair market value and avoiding capital gains taxes on the property’s appreciated value. Additionally, donating real estate can simplify your estate planning and reduce the burden on your heirs. This is not just a gift; it’s a legacy that can make a difference long after you’re gone.

What Does this Gift Mean to a Nonprofit?

Next, look in the garden to see the growth resulting from your gift.

Receiving real estate donations can be transformative for nonprofits. Such gifts can provide immediate financial support if the property is sold, or serve as long-term investments if the property is retained. The nonprofit can also use real estate for operational needs or program expansion beyond what the nonprofit could have hoped to afford before your gift. Infusing a valuable asset can significantly boost the nonprofit’s ability to fulfill its mission and expand its impact. Your gift can fuel growth and change, and that’s something to be proud of.

Elvis and Priscilla know they could never afford to give Charity USA a significant gift from their bank account. However, they realize their properties would likely have a value of around $500,000 if given to Charity USA to use or sell. Their properties would fund new projects and allow Charity USA to grow, and Charity USA will remember them among their most generous donors. This gift is getting interesting!

Is this Gift a Good Fit For You?

Finally, the tour continues inside the home. The living room welcomes you. What type of living do you see happening in this property?

A gift of real estate is an opportunity to assess what benefits you are receiving from your estate. In this imaginary house, your living room may be filled with family and warm memories or with bustling and productive professionals—maybe even with representations of your land at work. This is a property you should keep.

What if the imaginary room is empty? Many parents and grandparents purchase second homes and assume their heirs will want this property after passing. However, homeowners rarely ask their heirs if they wish to have the burden of the property or if they will use it at all. An empty condo on the beach contributes little to your family’s joy and may be a detriment to their peace of mind.

Similarly, an empty commercial property is likely no longer serving you in the ways you planned. A lot of land is an overgrown hassle if you do not have the time, energy, or extra financial capacity to fulfill its potential.

This situation begs the question: Are you benefitting from owning the property more than a nonprofit would benefit from using or selling it, and more than your potential charitable income tax deduction will benefit you? A conversation with the nonprofit and a financial advisor can help you weigh this decision to find out.

Elvis and Priscilla know that their properties don’t bring them the same benefits they used to, so they give them as charitable gifts. They trust Charity USA to turn those properties into a force for good.

How to Make a Gift of Real Estate

It’s time to enter the kitchen, where the procedure of recipes reigns. Let’s review the “recipe” for a gift of real estate. (For a formal professional approach, please see this page on Gifts of Real Estate.)

1. 1. Decide on what property you could realistically part with.
      
      1. This doesn’t just mean personally.
      2. To make the best possible gift, the property should be free of debt and liens, in reasonable condition, and marketable.
   2. Approach the nonprofit to be sure they can accept your gift.
      
      1. Nonprofits can refuse to accept a property if it puts the nonprofit at risk of liability or unaffordable expenses.
   3. Discuss your charitable goals and the gift’s potential impact with an advisor from the nonprofit.
   4. Have a third-party qualified appraiser assess the fair market value of the property.
      
      1. You would also need to take this step if you decided to sell your property.
      2. You will find and pay for the appraiser to avoid a potential conflict of interest with the nonprofit.
         
         1. However, the appraisal is something you can keep and use even if you don’t decide to move forward with your gift.
   5. Optional, but recommended: talk to a tax professional to estimate your tax advantages for this gift based on its appraised value and your financial situation.
      
      1. Gifts of real estate to a nonprofit offer a charitable tax deduction of the house’s fair market value.
      2. Your annual charitable tax deduction can be applied to up to 30% of your annual gross income (AGI).
         
         1. However, you can extend the value of your gift across five years. Ask your advisor for details on “carrying forward” your deduction.
      3. Factor in the amount you will save by not paying to maintain the property while on the market, not continuing to pay insurance and property tax, and not paying the realtor fees on the property’s sale price that you would owe if you sold it instead.
      4. Remember, you will save money by not having to pay the capital gains tax that would be due if you sold the property!
   6. Inform the nonprofit of your decision to gift your property. The nonprofit will conduct due diligence, including assessing the property’s condition, marketability, and potential liabilities.
   7. The nonprofit will have its legal counsel instruct the title agency to begin the transfer of ownership process, which generally requires only your signature.
      
      1. Most nonprofits will allow you to suggest an attorney and title agency for the process if you have a preference.
      2. No fee passes to the donor during the transfer of ownership; the nonprofit assumes all professional fees.
   8. When the transfer of ownership is complete, you are no longer responsible for the property and will stop paying utilities, maintenance, taxes, and other expenses. The new owner, the nonprofit, will now assume those responsibilities.
      
      1. Be sure to inform these vendors that they should no longer charge you for services at your gifted address.
   9. Acquire a signed Form 8283 from the nonprofit and give it to your tax advisor to include with your tax filings.
   10. Done! The nonprofit may keep the property to advance its charitable mission or sell it and use the proceeds as funding.
       
       1. Most nonprofits like to stay in touch with the donor and send updates on the impact of your gift.
   11. Tell your heirs to thank you, as well—you made a substantial charitable impact while saving them the time and money it would take to have kept or sold that property after your passing and removing its value from your taxable estate.