Real estate represents the largest asset class in the United States, comprising 43 percent of America’s total wealth, yet only 3 percent of total charitable giving comes from such gifts.
Real estate is often overlooked as a powerful charitable giving asset for two reasons:
- Donors do not realize they can give real estate directly to charity; and
- Gifts of real estate are complex, often involving a team of experts to execute.
While charitably-minded individuals may find it easier to sell their appreciated land or real estate and then make their donation to charity, the truth is donating the after-tax proceeds diminishes the size and impact of your gift.
The example below illustrates the capital gains and tax savings benefits for a donor who gifts property valued at $1 million directly to charity (Option 2), rather than selling property and donating the after-tax proceeds (Option 1).
This hypothetical example does not take into account state or local taxes or the Medicare net investment income surtax. The tax savings shown is the tax deduction, multiplied by the donor’s income tax rate (24% in this example), minus the long-term capital gains taxes paid.
What are the benefits?
Direct gifts of real estate to 501(c)3 public charities can provide significant benefits. You can:
- Avoid paying capital gains tax on the sale of the real estate;
- Receive a charitable income tax deduction based on fair market value of the property;
- Increase your income for retirement with a charitable gift annuity or charitable remainder trust;
- Complement the unique advantages of your private foundation;
- Make a greater philanthropic impact; and
- Leave a lasting legacy for you and your family.
However, all charities are not equipped to receive or process complex gifts like real estate.
Gifting to Donor-Advised Funds
Donor-advised funds can be your solution to liquidating your real estate gift so you can give – or grant – to the charity of your choosing.
Donate long-term real estate (held more than one year) to a donor-advised fund by executing or signing a deed transferring ownership to a community foundation, like The San Diego Foundation. You may deed part or all of your real property.
The gift will be based on the property’s fair market value, which must be established by an independent appraisal.
By donating real estate to a donor-advised fund, not only will you receive the benefits outlined above, but you will also have additional money to grant to your favorite charities and causes over time, as your original donation grows tax-free and is invested to maximize return and strengthen grantmaking and social good power.
“We partnered with The San Diego Foundation to donate our family condo in Oregon to our donor-advised fund,” said Foundation donor Jim Ward. “We relied heavily on their expert staff to guide us through the steps needed to maximize our donation and avoid paying unnecessary capital gains tax.”
“I felt comfortable and secure donating my real estate to The San Diego Foundation,” said donor Mike House. “I was getting the best advice and was able to lean on the team to maximize my gift.”
At The San Diego Foundation, we also collaborate and work closely with your team of experts, including professional advisors such as accountants, tax attorneys, and estate planning attorneys, for gifts of real estate.
“The Foundation has been my partner in philanthropy for many years,” said Laura Nichols, Certified Specialist in Estate Planning, Trust & Probate Law at Buchalter Law Offices.
“My clients and I work with their giving advisors to realize estate planning goals, which often include using sophisticated trusts to increase charitable impact and maximize tax deductions,” she added.
Donating Non-Cash Assets
While gifts of real estate can be more complex and less liquid than conventional assets, working with a community foundation alleviates many of the challenges for you.
Since 1975, we have helped passionate, socially minded citizens find ways to create positive impacts in communities across San Diego.
If you are interested in learning more about the benefits of gifting a complex, non-cash asset like real estate to establish a donor-advised fund, contact our Director, Gift Planning Advisor Leslie S. Klein, CFP®, AEP® at firstname.lastname@example.org or (619) 814-1353.