By Todd Cohen
Donors and charities can reap big benefits real estate gifts, but also face tough issues ranging from depreciation, income and capital gains on property to its upkeep, cleanup and sale.
While tax planning can seem complex, even for a relatively straightforward gift, the benefits can be big, says Chase Magnuson, president of Real Estate for Charities in Carlsbad, Calif., which handles donations of real estate for individuals, charities, corporations and bank trust departments.
The income to a 65-year-old donor who gives an $800,000 home that has quadrupled in value to a charitable remainder trust, for example, might total $300,000 over the next 20 years, with some of it taxed as a capital gain and some taxed as ordinary income.
The donor could use the $500,000 difference between the value of the gift and the income, known as the “gift component,” to offset 30 percent of adjusted gross income on income taxes, spread over six years, if needed.
“In tax planning, it’s an absolute bonanza,” says Magnuson. “They’re using appreciation on a property they only paid $200,000 for, which is now worth $800,000, to lower their taxes.”
But donors also must secure a qualified appraisal to support their gift deduction and, even if they hire good accountants and attorneys, still must make the final decision, and many donors are older and sometimes less in command of details, Magnuson says.
“Although they have to be competent to give these properties away, the process they go through is painfully slow and they sometimes forget the facts,” he says. “It takes a good deal of nurturing by the planned giving officer.”
Charities also face challenges, he says, ranging from snags in real estate titles to costs in handling and selling real estate, environmental problems and the donor’s mental competency.
But if they are careful, he says, the payoff for donors and charities can be worth it.
“Donors need to deal with a charity that has a track record of taking real estate,” he says. “And a charity should have in place a team of real estate experts who can advise it as consultants on acceptance of the gift, marketing of the gift and management of the whole process on behalf of the charity.”
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