Donating Real Estate to Charity | Tax Info, Steps, and More

Donating real estate to charity allows you to support a worthy cause while enjoying numerous tax advantages. If you’re considering reaping the benefits of a charitable real estate donation, you must learn more about the process and legalities involved. Unlike donating cash to a charity, donating real estate comes with complex steps, potential liabilities, and tax implications to understand before beginning the process.

At Easy Donation Pickup, we offer donation pickups for the National Veterans Foundation. Below, we discuss what you need to know about donating real estate to charity. For further information, consult a legal or financial advisor.

Understanding the Process of Donating Real Estate

If you want to donate a piece of real estate to charity while enjoying tax advantages, it must be an eligible property, and you’ll need to provide all of the appropriate documentation. Here’s an overview of the process:

Eligible Properties

You can donate nearly all types of developed or undeveloped commercial or residential properties, including the following:

• Residential homes
• Vacant land
• Commercial buildings
• Vacation properties
• Industrial buildings
• Apartment complexes
• Condos
• Mobile homes
• Farmland
• Historic structures
• Rental homes
• And more

Regardless of your donated property, the charity will be able to use it as it pleases upon accepting the donation.

Legal and Financial Considerations

Before deciding whether to donate or sell the property, we recommend considering the following legal and financial factors:

• Does the property still have debts? If so, the IRS may view the property as a “bargain sale,” requiring you to pay capital gains tax.
• Have you pre-arranged any sales? Pre-existing sales agreements can trigger the donation as an “anticipatory assignment of income” to the charity, which could also require you to pay capital gains tax.
• Have you calculated your income tax deduction? If you donate to a donor-advised fund, your overall tax deductions cannot exceed more than 50% of your adjusted gross income.

Required Documentation

If you’re donating a property worth $5,000 or less, you will need to complete Section A of Form 8283, and then attach it to your tax return. You will also need a receipt from the charity.

Properties worth more than $5,000 will still need a receipt from the charity but will also require a professional appraisal. You will need to submit Section B of Form 8283 with your tax return instead.

Steps Involved in Donating Real Estate

Donating real estate to charity requires quite a few complicated steps that your legal advisor can walk you through. Generally, you will need to complete the following:

Initial Consultation With the Charity

You cannot simply donate real estate to charity without consulting the organization first. You will need to meet with advisors from the charity in advance to talk about your charitable contribution, how you wish to donate it, and other details.

Property Evaluation and Appraisal

After reaching an agreement with the charity, you will need to have the property evaluated and appraised. Unlike property sales, you cannot bargain over a sale price. Instead, you will typically have a professional appraiser set a price based on the property’s fair market value at the time of the donation.

Transfer of Title and Documentation

Upon appraising the property, you can begin the title and documentation transfer process. If you choose to establish a trust, the title transfer process will vary somewhat. Your legal advisor can walk you through all title and documentation transfers to ensure that everything goes smoothly.

Which Charities Accept Real Estate Donations?

If you’re interested in donating real estate to charity, you have quite a few options, such as the following:

Habitat for Humanity

Habitat for Humanity promotes accessible housing and affordable homeownership for low-income families. You can donate various gifts of property, such as homes, appreciated real estate, undeveloped land, farmland, vacation properties, commercial buildings, and more. The organization has an option that allows you to make a charitable gift while still using the property throughout your lifetime.

Goodwill

You can donate real estate to Goodwill by placing it in a trust, donating it through your will, or giving it outright. If you choose the latter option, you can continue living in the home for the rest of your life while reaping the financial benefits of donating real estate.

The Nature Conservancy

The Nature Conservancy is a worldwide environmental organization aiming to fight climate change. You can donate to the mission by giving two types of property gifts: land that you would like the organization to permanently protect or land that you permit the organization to sell, with the proceeds supporting the mission.

American Cancer Society

The American Cancer Society supports cancer research while helping patients in the community. The organization accepts gifts of real estate, such as commercial properties, vacation homes, undeveloped land, and more.

Local Community Foundations

Depending on your area, you may be able to find additional local organizations that accept real estate donations. For full tax advantages, the charity will likely need to be a qualified organization under section 170(c) of the Internal Revenue Code.

What Strategies Can Donors Employ When Donating Real Estate to Charity?

As we’ve mentioned a few times, you have a few options when donating real estate to charity. Read more about each below so you can have a better understanding of what will work for your needs.

Direct Donations vs. Charitable Remainder Trusts

Direct donations, also referred to as outright giving, mean you directly transfer the property’s title to the charity. In this scenario, you can opt into a tax deduction equivalent to the fair market value of the property, and you may carry this deduction forward for up to five years.

Another popular option that many donors choose is charitable remainder trusts. CRTs are a form of irrevocable trust where portions of the trust’s value will be distributed to beneficiaries, often on an annual basis, until the remaining CRT assets are released to the charity.

Essentially, with a CRT trust, you can receive income from your property for numerous years or throughout your life, then give the real estate to the charity at a designated point. Not all charities will accept these terms, so you must discuss this in advance.

Donating Mortgage Properties

Donating mortgage properties involves donating any real estate that still has debts. In this scenario, you will typically use any auction proceeds to pay off the property’s mortgage before giving the remaining proceeds to the charity.

Donating Partial Interests

Partial interest donations allow you to donate a portion of your property to charity while retaining the rest for yourself or others. You can still enjoy tax advantages while retaining partial ownership of your real estate.

Benefits of Donating Real Estate

Real estate donations can offer numerous benefits, including the following:

Tax Deductions

The real estate donation, in most cases, will qualify for a tax deduction that you can carry forward for up to five years. Depending on the size of your donation and the type of property, you may be able to claim as much as 50% of your AGI.

Avoidance of Capital Gains

Assuming you donate property that you’ve held for at least one year, you can avoid capital gains tax. Some restrictions can apply here in special scenarios, so be sure to consult your legal advisor.

Simplified Estate Planning

Passing your estate on to beneficiaries involves expensive and complicated documentation, such as opening up trusts and other legal structures. You can avoid this by simply gifting the property to charity.

Supporting a Cause

By donating real estate to charity, you can support worthwhile causes, such as cancer research, support for housing accessibility, the fight to end climate change, and much more. Your donation can make an enormous impact on many communities in need.

Legal and Financial Risks Donors Should Consider

Before donating real estate to charity, you should consider the potential risks, such as the following:

Potential Liabilities

One of the primary liabilities that can arise when donating properties is the concern of existing debts. If you donate a mortgage property, you may be subject to IRS “bargain sale” rules, which can reduce the value of your charitable deduction while potentially requiring you to pay capital gains tax.

Title Issues and Due Diligence

Transferring titles requires legal due diligence. If you discover any title issues, like public record errors, unknown liens, forgeries, illegal deeds, or survey disputes, you will likely have trouble transferring the property to the charity.

What Are the Tax Implications Associated With Donating Real Estate?

Donating real estate to charity allows you to qualify for a tax deduction equal to the property’s fair market value or cost basis, depending on how long you held the asset. At the same time, you can avoid capital gains tax entirely. The rules here vary, so you must speak with a tax consultant or legal advisor for your exact reporting requirements.

If you want to enjoy tax benefits without donating real estate, consider donating household goods to the National Veterans Foundation. Schedule your free donation pickup today with Easy Donation Pickup.