Gifts of Real Estate

Gifts of real estate offer the opportunity to make meaningful charitable gifts and to enjoy substantial tax and financial benefits. Whether it is a personal residence or vacation home, apartment building or investment property, commercial building or developable land, real estate is an excellent asset for charitable giving.

Outright Gifts

Outright gifts of real estate to a public charity provide a charitable deduction of the fair market value of the property contributed. This amount may be taken up to 30% of the donor’s adjusted gross income. Donors also avoid capital gain tax that may apply on a gift of long-term property.

Gifts Providing Income

Gifts of property can also be made to a Charitable Remainder Unitrust (CRUT) that pays income for life or a term of years. By donating real estate to a CRUT, the trust avoids capital gain tax when the property is subsequently sold. The trust can invest in a more diversified portfolio.  Donors receive an income tax deduction based on the value of the remainder interest for charity.

Gift through Will or Trust

Donors may bequeth real estate to the Maine Community Foundation by a gift through a will or living trust. While such a transfer does not generate any income tax savings, all bequests to charity from a will or living trust qualify for an unlimited estate tax charitable deduction.

Important Considerations

A gift of real estate requires careful planning. Key considerations include:

• Marketability. Gifts of real estate should be readily marketable to achieve the donor’s charitable objectives.
  
• Professional Appraisal. The IRS requires that a donor obtain an appraisal from a qualified  appraiser to substantiate the value claimed as a charitable donation.
  
• Inspection and Environmental Review. Gifts of residential and commercial property typically require an inspection by a reputable firm. Some real estate gifts may also require a preliminary environmental review to assure that the property is not subject to unknown contamination (Phase I). A more in-depth review may be required in the event that the initial report uncovers the need for further testing (Phase II).
  
• Transactional Costs. Direct costs associated with the transaction are borne by the charitable fund created at the foundation. Examples include legal fees, brokers fees, title insurance, inspection costs, property taxes, upkeep and maintenance.
  
• Mortgages and Liens. Donated property should generally be free of debts, liens, mortgages and other encumbrances.

Private Foundation Problems and Alternatives

Gifts to private foundations of appreciated long-term capital gain property such as real estate are valued at the donor’s cost basis only, rather than fair market value. For a donor who may have depreciated their interest in a property over time, a gift of property to a private foundation  offers little tax benefit.

A donor may, however, use a gift of real estate to create a donor-advised fund at the Maine Community Foundation, which allows donors and family members to be involved in setting their family’s philanthropic goals.

Gifts to the Maine Community Foundation qualify for the maximum tax benefits allowed—and the valuation of assets contributed is calculated at fair market value.