Donating real estate to charity for more impactful giving

Donating time and money to your favorite charities is a worthy endeavor, allowing you to support the causes you care about most. But maybe you don't have the time or money to make the impact you want, or perhaps you want to find another way to benefit charities on top of the giving you already do. Donating real estate to charity can help you accomplish that goal.

Here are the benefits of donating real estate and how qualified nonprofit organizations can use the donation.

Transferring, managing and selling real estate require specialized skills, so not every charity is equipped to accept real estate donations. However, any 501(c)(3) public charity that accepts these donations could be a candidate to receive a donation of real estate. The charity might use the property itself, but in many cases, it sells the property and uses the income to fund its mission. You likely will want to vet the organization to make sure it's legitimate and uses donations efficiently before partnering with them.

Another option is to use your property to fund a giving account called a donor-advised fund (DAF), by a 501(c)(3) charitable organization that administers DAFs. The fund administer sells your property and uses the proceeds to create a DAF. You are then made the fund advisors and discretion over how to use the proceeds to provide cash gifts to other charities immediately or over many years. An additional benefit of a DAF is while you make decisions on how to use the fund, the money is invested and can potentially grow, providing greater impact on your original proceeds used to create the fund.

Once you donate real estate to charity, you can't change your mind. Your gift is irrevocable, so consider the decision carefully with your family and your financial advisor before taking action.

And if you want to claim a tax deduction for your charitable donation, you need to get the property professionally appraised following IRS rules to substantiate a property donation worth more than $5,000. The IRS generally doesn't require you to submit the appraisal with your return unless the property is worth more than $500,000.

It depends on the charity, but in most cases you can donate:

• Your primary residence
• An investment property
• Your vacation home
• An inherited property

You may want to donate real estate for purely altruistic reasons, but your donation also may have practical benefits. Besides tax savings, you might want to unburden yourself from an investment property that's costing you more than it's bringing in, perhaps because demand is too low or operating expenses are too high.

Some charities accept donations of properties with deferred maintenance and use their expertise to resolve those issues. You even can donate land to charity—it doesn't have to be a developed property.

For example, Habitat for Humanity may accept your donation of a home that needs renovations or undeveloped land that's zoned for residential use. These properties can be a perfect match for this organization since charitable recipients must put in sweat equity toward the construction of their home.

While donating real estate outright may be one giving option, other ways of giving may be more appealing if you want to retain the benefits of owning the property for as long as you're alive, or to generate income. Here are three options:

• Will or living revocable trust: If you're unsure about making a gift of real estate right now, consider leaving the property to charity as part of your estate plan.

• Retained life estate: You deed the property to charity as a gift, but you continue to live there or use it to generate income for the rest of your life.

• Charitable remainder trust: If you're donating appreciated real estate, consider a charitable remainder trust. You get a stream of income from the trust for a certain number of years or lifetime, after which the remaining trust assets pass to your chosen charity.

Donating property can have tax benefits that help you save money while increasing your gift's impact.

• Reduce or eliminate capital gains tax: If you were to sell appreciated property and then donate the proceeds to charity, the charity would receive less. That's because you first have to pay capital gains tax on the difference between the property's basis and its sale price.

• Remove the property from your taxable estate: If your estate is large enough that it may be subject to estate taxes, you may be able to increase your charitable impact by avoiding that tax and gifting the property. To do so, you need to make an outright gift during your lifetime or use one of the flexible giving strategies described earlier.

• Claim an income tax deduction: You may be able to claim a real estate donation tax deduction based on the property's fair market value as determined by a qualified appraisal.

Certain aspects of property ownership can make donating real estate more complicated than donating other assets.

• Length of ownership: To claim a tax deduction for the property's appraised fair market value, you need to have owned it for more than one year. If you've owned it for one year or less, your donation may be limited to less than fair market value.

• Debt: If you have a mortgage on the property, donating the property to charity can create a tax liability for you under IRS bargain sale rules and for the charity under IRS acquisition indebtedness rules. Some organizations, such as Thrivent Charitable, require debt to be paid prior to accepting the donation.

• Tax deduction limits: When you donate real property, you may be able to deduct up to 30% of your adjusted gross income in a single tax year. You may be able to carry over any remaining deduction for the next five years.

• Potential issues with donating real estate to charity: Complications could arise during the donation process. Knowing some of the more common issues and how you might handle them can prepare you for a more seamless giving process.

• Title defects: The property needs to have a clear title, just like if you were selling the home. A title company can help you clear up any problems encountered during the title search.

• Prearranged sales: If the charity signs a contract to sell the property before you donate it, the IRS might consider the transaction an anticipatory assignment of income instead of a donation, and you might owe capital gains tax on the sale.

It's easy to get excited about helping others by donating your real estate. But before moving forward, talk to a certified public accountant and a real estate attorney. They can analyze the situation to help you be sure you're making the right decisions for your circumstances from a tax and legal perspective. In addition, your attorney can review the donation agreement with any charity you're considering.

To learn more about donating real estate to charity and other giving tools that could help you accomplish your goals, connect with a Thrivent financial advisor. Your advisor can show you how to maximize your giving without compromising your own security.