How do the tax benefits work for real estate donations to charity?

by Amy M. Swartzfager, CPA | Oct 25, 2018

I wanted to know how do real estate donations work as far as the tax cut? I was told that I would get full fair market value back on my taxes if I donated one of my houses which is paid off. Also, what would be the effect of having a property that I owe mortgage on but would like to donate as well. Is there a difference in donating to a private foundation or a public charity?

There are a lot of tricky rules associated with donating a house. First, be sure that the organization you plan to donate to has 501(c)(3) status.
If the fair market value (FMV) of the house is greater than your basis in the home (what you paid for the house plus the cost of any improvements made) then it would be considered capital gain property. In the case of capital gain property, the FMV is the amount that you would use for your deduction. However, the FMV must be determined by a professional appraiser. Also, depending on your adjusted gross income (AGI), you may not be able to take the full deduction in the year that the property is donated. Deductions for capital gain property are limited to 30 percent of your AGI. Anything over 30 percent would be carried forward for the next five years. There is an option to make a capital gain property election that allows you to deduct up to 50 percent of your AGI, but you would not be able to use the FMV of the property. More information on this can be found in IRS Publication 526

If you contribute property subject to a debt (such as a mortgage), you must reduce the fair market value of the property by any allowable deduction for interest you paid (or will pay) that is attributable to any period after the contribution. If the recipient (or another person) assumes the debt, you must also reduce the fair market value of the property by the amount of the outstanding debt assumed.

Certain private nonoperating foundations are subject to a 30 percent of AGI limit. In the case of capital gain property, there would not be a difference between donating to a private foundation versus a public charity. More information can be found about this as well in IRS Publication 526.

This type of transaction has a lot of moving parts. I recommend that you enlist a CPA to help you through the transaction as well as reporting the transaction so that you get the maximum benefit from your contributions.

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Answered by: Amy M. Swartzfager, CPA, is a senior tax analyst with API Technologies Corporation in Fairview, Pa.

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
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