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Red hot real estate: Structure smart gifts to charity without getting burned

The housing market is showing no signs of slowing down in 2021. For certain clients, this presents an opportunity for charitable gifts of real estate, whether a primary residence, second home, rental property, or even niche commercial property that’s benefited from a multi-faceted pandemic marketplace.

As is the case with gifts of other long-term capital gains assets, gifts of real estate to a nonprofit can be extremely tax-efficient. Whether your client is contributing a second home, rental property, or commercial property to a fund at the Community Foundation, the client may be eligible for a charitable tax deduction of the fair market value of the property. Because CFAAC is a public nonprofit, when the property is sold, the full amount of the proceeds will remain in the fund – and not subject to income tax. 

Gifts of real estate to charity shouldn’t be undertaken lightly, though; certain pitfalls and missteps can have a devastating tax impact. If your client is considering a gift of real estate to charity, consider working closely with CFAAC to ensure that the transaction is properly structured. We can help you navigate the rules for real estate gifts such as how to determine valuation, deal with debt on the property, substantiate value and properly report the transaction on Form 8283, as well as when and to what extent minority interest discounts may apply, how to avoid a “step transaction” due to a prearranged sale, and determine whether unrelated business taxable income or UBTI will be a problem.

Finally, if your clients would like the gift of real estate to benefit one or more of their favorite nonprofit organizations, CFAAC can help facilitate a transfer into a donor-advised fund, where your clients can recommend grants to nonprofits after the property sale is complete.


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