By Sheila Kinman, CAP®, Chief Philanthropy Officer
If you work with individuals and families who are engaged in philanthropy, you know that real estate can be a powerful asset for charitable giving. Real estate is the largest asset class in the world, yet various industry sources suggest that only 3% of charitable giving involves gifts of real estate. This gap presents an opportunity to better understand how real estate can support your clients’ charitable goals.
In the coming years, we may see changes in this gap as real estate ownership changes hands rapidly amid a major transfer of wealth. Gen X and Millennials are expected to potentially inherit trillions of dollars in real estate, and that shift has important implications for charitable giving. As more families hold significant wealth in property rather than cash, philanthropy will increasingly involve non-cash assets, especially appreciated real estate. At the same time, many clients are reassessing properties they already own, particularly vacation homes that once felt like a dream but now feel underused, costly, or burdensome.
In light of these shifts, it is important to understand how real estate can be repurposed to support charitable goals in a tax-efficient way. Here are six considerations to keep in mind:
—Gifts of long-term capital assets, including real estate, are typically eligible for a charitable deduction based on the property’s fair market value, rather than its original cost when they’re given to a public charity. You’ll want to confirm that the property qualifies as a long-term capital asset, since the fair market value deduction is available only for property held for more than one year.
—Your clients can make gifts of real estate to a donor-advised or other type of fund at Community Foundation Tampa Bay. Because the Community Foundation is a public charity, when the property is sold, the proceeds can flow into the fund without triggering capital gains tax. This allows a client to convert an illiquid or burdensome asset into a flexible charitable resource that can support favorite causes over time.
—Before your client sets in motion a gift of real estate, we encourage you to connect with the Community Foundation team to help evaluate and coordinate the viability of the gift, as well as offer options for the types of fund or funds to receive the proceeds to achieve your client’s charitable goals.
—Additional considerations include confirming that the property is not encumbered by a mortgage or other debt, which can complicate the gift, evaluating whether depreciation recapture or unrelated business income tax could apply, and determining whether environmental due diligence is required.
—As is the case with any gift of an illiquid asset, documentation and process are critical. Your client must obtain a qualified appraisal to establish fair market value and properly report the gift on Form 8283, and the transfer must be completed using appropriate legal documents, including a deed.
—You’ll also want to ensure that the client has not prearranged a sale of the property (even through casual conversations), which could jeopardize the deduction under the IRS’s anticipatory assignment of income rules or step transaction doctrine.
The Community Foundation is here to help with the charitable aspects of all types of gifts, and real estate is no exception. We look forward to working with you and your clients to help transform real estate into a meaningful way to support lasting charitable goals.
Sheila Kinman, CAP® serves as Chief Philanthropy Officer at Community Foundation Tampa Bay. A seasoned expert in providing philanthropic solutions, she is dedicated to facilitating the joy of giving for donors. Sheila specializes in helping individuals, private foundations, nonprofits, and corporations direct their charitable giving in impactful and financially strategic ways. Her expertise also includes facilitating unique, non-cash gifts, such as donations of closely held business interests and real estate.
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