Gifts of Real Estate

August 11, 2022

Our nation has seen a rise in charitable giving, even in a pandemic. With a rise in charitable giving, donors may frequently look to their financial advisors and lawyers for assistance in developing a giving plan that works best for them and offers the most optimal tax benefits. One option an advisor can offer a client when it comes to planned giving is to consider a gift of real estate.

There are many benefits to donating appreciated real estate held for more than one year to the commonly used charitable fund, the donor advised fund (“DAF”). With a gift of real estate, a donor may be able to take an immediate tax deduction equal to the fair market value of the property of up to 30% of the adjusted gross income (“AGI”). If the donation is greater than 30% of the AGI, then the excess can be carried forward for five years.

Overall, this gift to a DAF may prove to have more advantageous tax savings when compared to similar donations made to private foundations, which are deductible at the lesser of the donor’s cost basis and the fair market value.

As with most other concepts, the benefits of contributing a gift of real estate to a DAF can best be crystallized by way of an example. Take the following scenario. Michael has a former primary residence that he no longer resides in. The property is clear of debt. Since Michael purchased the home several years ago, the fair market value is much greater than the basis value. He decided that he no longer wants to maintain the property and wants its value to support multiple charitable organizations. Michael has a specific long term charitable vision and is entrusting California Community Foundation (CCF) to work with his heirs to realize it over time.

If he sells the property and donates the proceeds, he will trigger capital gains. To avoid capital gains, Michael decides to deed the property in equal parts to CCF to sustain a DAF in his name, and to another community foundation to fulfill a similar function. By donating the property to CCF and the other community foundation in the year of the property’s sale, Michael can receive immediate tax advantages and continue to support various charities in the years to come. Thus, by using a DAF, Michael can satisfy both of his goals of avoiding capital gains and making charitable grants at his convenience.

If you are interested in making a gift of real estate to support charities that align with your values, the Planned Giving staff at CCF will work with you and your advisors to make the gift giving process as seamless as possible. To learn more about how CCF can help you with gifts of real estate or other complex gifts, please contact us at (213) 452-6263.

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