Real Estate Donation Tax Deduction Benefits
Real Estate Donation Tax Deduction Benefits

Real Estate Donation Tax Deduction Benefits

Donating real estate to charity is a noble cause – and alters your finances and legacy for the better. Instead of facing numerous taxes that come with just selling your property, you can tap into multiple tax deduction benefits through a donation.

From avoiding the dreaded capital gains tax to increasing your retirement income, you have a lot to gain by donating real estate to a nonprofit. In this article, we’ll explore in-depth what those benefits are, how you can take them, and what they could mean for you and your family.

What real estate can you write off?

First, let’s clarify what real estate you can write off. Generally, you can donate any type of residential, commercial, or industrial property, as well as land. Nonprofit organizations will accept office buildings, vacant land, condos, farms, historical structures, homes, restaurants, and more.

You can even write off a collection, or portfolio, of any combination of the above.

When Giving Property first began, we were contacted by an attorney in Florida. His client had left a restaurant, multiple mini-storage units, and several small boutique shops (still in operation) to the Disabled American Veterans (DAV) Charitable Service Trust.

We worked with the attorney and the beneficiaries to sell all the real estate for $660,000, which benefited not only Veterans but also the estate in the form of a sizable tax write-off.

Benefits you can claim

When you donate real estate to charity, there are several benefits you can claim.

The most popular is avoidance of the capital gains tax. A capital gains tax is one property owners must pay on any profits they make selling a property. At a federal level, this tax will range anywhere from 15% to 25%, depending on your income, plus the rate at a state level, which can be an additional 5% to 13%. This means that for every $100,000 worth of property donated to charity, you can avoid paying up to $38,000 in taxes.

In addition to avoiding the capital gains tax, you also benefit from the charitable income tax deduction to offset your income. The deduction amount is based on the fair market value of the property or properties you donate. Therefore, if you donate a $200,000 home, you can receive a $200,000 tax deduction (regardless of the final sales price).

While there is a cap on these deductions – limited to 30% of your adjusted gross income – you can use any unused portions of the deduction for the next five tax years. To claim this specific benefit, though, you will need to have owned the property for at least one year.

If you choose to donate your property to a Charitable Remainder Trust, you can also receive the combined benefit of avoiding capital gains, gaining a charitable income tax deduction, and earning future passive income. A Charitable Remainder Trust allows for part of the proceeds generated from the sale or management of your real estate to be given to a charity of your choice and the other part to you or your heirs in fixed amounts for the next 20 years. This can be a massive boost for your retirement nest egg.

How the write-off works

To qualify for these tax benefits and write-offs, you will need to transfer the property to either a Charitable Remainder Trust or a nonprofit organization. It’s important to make sure they are eligible to receive and manage the donation, and that they will properly report it to the IRS.

The charitable organization will then negotiate the sale of the property on the open market, usually with the help of an expert intermediary, like Giving Property. The property will be appraised to assess its fair market value, which will be provided to you to claim on your taxes.

When filing your taxes, you simply complete Form 8283 with the help of your tax or other financial planning professional – and then you’re done!

How Giving Property Generated a $50,000 Donation & Write-off

This is exactly how simple Giving Property made the process for a donor in Michigan. He initially contacted us about donating a motorcycle repair shop he had inherited from his father.

It was a property that was dear to his dad but had since fallen into disarray. The son could not keep it, nor could he make the repeated trips to oversee the sale, as he lived out of state. So, the Giving Property real estate team got to work.

We were able to locate a buyer willing to purchase the property and generate $50,000 for the benefit of Michigan Radio, a local public media station that his father enjoyed.

Through the donation, the son enjoyed the tax benefits it brought and was overjoyed by how quickly everything came together.

To work with a team to support you in making your real estate donation, give us a call at 844-277-HOME or contact us here:

**This article is for informational purposes only and does not constitute formal advice. Individual tax situations may vary so please contact your tax advisor if needed.