Considering Gift of Real Estate?

by Marilyn Kennedy Melia

Special to the Chicago Tribune

If you think all Americans have on their economic minds is stock market losses and real estate gains, why would charities be any different? More of them are asking people to consider the roof over their heads as a possible gift. “People’s stock holdings are down and they are holding on to their cash. Real estate is the major asset of most people. Real estate is the last untapped bastion for charities, and they are more interested [in receiving] it,” says Chase Magnuson, President of Real Estate for Charities, a firm in Carlsbad, Calif., that consults with charities on real estate donations. The typical middle-income American whose only real estate holding is the non-mortgaged portion of his home is not in the position to donate that valuable asset. But, Magnuson notes, there are plenty of people who own second homes, have inherited a house, hold vacant land or own a small apartment building who would want to give their holding away. “The profile of the typical donor is someone 65 or older with a net worth between $600,000 and $3 million,” Magnuson says. “They are also philanthropically inclined and don’t have many heirs.” And, real estate donors typically fit another profile: They’re interested in receiving a significant tax break. Although there are tax advantages, experts say an individual’s primary motive for giving real estate should be altruistic. “The bottom line is this: If someone has a personal conviction to support a charitable cause, giving appreciated real estate is a great deal for them and the charity,” says J. David Lewis, president of Resource Advisory Services Inc., Knoxville, Tenn. For many donors, like James Wilson who owned and rented a Chicago two-flat for many years, the impetus for giving is a combination of personal, financial and charitable considerations. “I retired and didn’t want the responsibility of being a landlord anymore,” Wilson said. “I decided this would be a good way out, and I chose Habitat for Humanity [to receive proceeds from the donation].” Wilson donated through Donate Real Estate, in Pontiac, Mich., after he heard a radio commercial the company aired earlier this year. “We investigate the property to see if the title is clear and to see if there are environmental problems,” says Michael Kashian, executive director of Donate Real Estate. “Then if the property looks OK, we deed it to one of the charities we’re affiliated with and the donor takes a deduction for the highest appreciated value they can get on the property.” Annual deductions on donated real estate are limited, though, to 30 percent of the adjusted gross income of the donor, Kashian notes, but deductions can be spread out over five years. “If your income is $100,000, you can deduct $33,000 the first year, $33,000 the next, and so on,” he explains. That’s a straight-forward method of taking a deduction for a real estate donation, but as with most tax matters, there are complex alternatives. Individuals can also deduct the cost basis of the donated property, and can then take a deduction of 50 percent of gross income over five years. An individual should never give real estate without first consulting with an attorney, Magnuson advises. Moreover, a reputable charity will insist on the donor seeking counsel, he says. “If a charity says, `We do this all the time, you don’t need someone to advise you,’ then be skeptical,” he warns. “Charities have to be careful about accepting real estate and individuals have to be careful when they’re giving,” says Terry Simmons, senior partner in the Dallas law firm of Thompson & Knight. “If you give property that’s debt-encumbered, for instance, it may be treated as a bargain sale transaction and you may have to pay a big tax.” Moreover, charities won’t accept properties riddled with environmental pollutants or other potential liabilities. Charities must be careful about accepting property even though most non-profit groups don’t actually hang on to donated real estate, but sell it for the proceeds. Address questions to: Financing, Chicago Tribune, Real Estate section, 435 N. Michigan Ave., 4th Floor, Chicago, IL 60611. You may also e-mail realestate@tribune.com. Copyright (c) 2002, Chicago Tribune For more information on this subject, please contact: Chase V. Magnuson, President Real Estate for Charities  |  Phone: (714) 815-8889 Email: info@realestateforcharities.com