Video: Real Estate Right Now | Donating Appreciated Property
March 20, 2023 | BY Alan Botwinick & Ben Spielman
Real Estate Right Now is a video series covering the latest real estate trends and opportunities and how you can make the most of them. This episode discusses a tax-friendly way to maximize your charitable donations – by donating appreciated property.
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Donating appreciated property to a charitable organization that you care about is not only a do-good, feel-good undertaking; it also offers valuable tax benefits. When you sell a real estate property and donate the proceeds, your earnings are subject to capital gains tax. If instead, you donate that same property, you are free from capital gains taxes and the charity gets a higher-value donation. It’s a win-win.
A second benefit is realized when a real estate owner donates appreciated property held longer than one year. Appreciated long-term assets – such as stocks, bonds, mutual funds, or other personal assets like real estate that have appreciated in value – qualifies the donor for a federal income tax charitable deduction. Generally, this deduction is for the full fair market value of the property (or up to 30% of the donor’s adjusted gross income). If the property is held for less than a year, an owner can still benefit by deducting the basis of the property. Since the calculation is based on fair market value, it is highly recommended to get a qualified appraisal on the property so that the donor can substantiate its value if challenged.
What happens if the property is mortgaged? That debt is taken into account when calculating the deduction. The donation of the property is divided into two parts. The portion of the fair market value representing the mortgage is treated as a sale, and the equity portion is treated as a donation. The adjusted basis of the property will be prorated between the portion that is ‘sold’ and the portion that is ‘donated.’ The calculations are often complex, so don’t try this at home! Consult with an experienced tax advisor when donating a mortgaged property for the most accurate computation of your tax benefits.
The double benefits of donating appreciated property – a fair market value deduction and avoidance of the capital gains tax – makes donating to causes you care about both a generous and tax-efficient way to support a charity.
This material has been prepared for informational purposes only, and is not intended to provide, nor should it be relied upon for, legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.