Donating real estate to a charity is not only for the rich. For many people and companies, donating real estate is a way to get rid of unwanted property. This relieves the liability they have to the property including taxes and insurance costs.
The following are the rules that apply for real estate donation:
If the property is owned in your own name, with your spouse or other person and you have held the property for more than a year, it is classified as long-term capital gain property. The full fair market value of the donated property can be deducted. The charitable contribution deduction is limited to thirty (30%) of your adjusted gross income.
The excess contribution can be carried forward for up to five years. If the property has been depreciated, the fair market value must be reduced by its accumulated depreciation through the date of contribution. Fair market value is usually determined by an independent appraisal.
If you elect to deduct your cost basis of the donated property you are allowed a deduction of fifty percent (50%) of your adjusted gross income. Again, you may carry the excesses forward up to five years. Selecting the method you elect to donate the property should be made on the cost basis in the property donated, your tax bracket, the age and health of the donor and whether future contributions are planned.
The following rules apply if a corporation makes your contribution, these rules apply:
If the property has been held for more than one year and you have controlling interest in the corporation, the corporation can deduct up to ten percent (10%) of the net profit of the corporation. Like individual who donates property, the corporation can carry the excess amounts up to five years. The fair market value must be reduced by the amount of accumulated depreciation. If “Subchapter S” status has been elected, the contribution allowed must be reported on the individual shareholders K1 and may be deducted on individual returns.
The following rules apply if a partnership, S-Corporation or limited liability company is making your contribution:
A deduction for the property donated may not be claimed by the corporation. The contribution passes to the individual shareholders on a pro-rated basis dependent on the percentage of ownership in the S corporation. The shareholder can claim the deduction on the individual tax return. The carry forward rules and limits will apply.
Partnerships and LLC contribution rules are the same as an S corporation with one exception. The partners or members can claim a deduction even if they have no basis in the partnership or LLC.
Real estate investing can be risky. Each deal can be a winner, a loser or a break even. It is important to fully research all aspects of a deal and it is always important to consult a CPA or an attorney with specific question. Your CPA or attorney should know your specific tax benefit.