Tax benefits of making a real estate donation to Charity
Tap into multiple tax deduction benefits through a real estate donation to veterans instead of dealing with the headache of hefty taxes that comes with selling your property. From bypassing capital gains tax to increasing your retirement income, you have a lot to gain by donating real estate to charity.
In this article, we’ll look at several tax benefits, how you can take advantage of them and what they could mean for you and your family.
What real estate can you write off?
Generally, you can donate any type of residential, commercial, or industrial property, as well as land. DAV will accept office buildings, vacant land, condos, farms, historical structures, homes, restaurants and more.
You can even write off a collection, or portfolio, of any combination of the above.
Recently, DAV was contacted by an attorney in Florida. His client had left a restaurant, multiple mini-storage units, and several small boutique shops (still in operation) to DAV.
We worked with the attorney and the beneficiaries to sell all the real estate for $660,000, which benefited not only disabled veterans but also the estate in the form of a sizable tax write-off.
Benefits you can claim
There are several benefits you can claim when you donate real estate to DAV.
The most popular is avoiding capital gains tax. Capital gains tax must be paid by the property owners on any profits they make upon selling a property. At a federal level, this tax will range anywhere from 15% to 25%, depending on your income, plus the rate at a state level, which can be an additional 5% to 13%. This means that for every $100,000 worth of property donated to DAV, you can avoid paying up to $38,000 in taxes.
In addition to avoiding the capital gains tax, you also benefit from the charitable income tax deduction to offset your income. The deduction amount is based on the fair market value of the real estate you donate. Therefore, if you donate a $200,000 home, you can receive a $200,000 tax deduction (regardless of the final sales price).
There is a cap on these deductions which is limited to 30% of your adjusted gross income. But you can use any unused portions of the deduction for the next five tax years. To claim this specific benefit, you will need to have owned the property for at least one year.
If you choose to donate your real estate to a Charitable Remainder Trust, you receive the combined benefit of gaining a charitable income tax deduction, avoiding capital gains and earning future passive income. A Charitable Remainder Trust allows for part of the proceeds generated from the sale of your real estate given to charity DAV and the other part to you or your heirs in fixed amounts for the next 20 years. This can be a massive boost for your retirement nest egg.
How the write-off works
You will need to transfer the property to either a Charitable Remainder Trust or directly to DAV in order to qualify for these tax benefits and write-offs.
When you donate real estate to support our veteran’s programs, DAV will negotiate the sale of the property on the open market with the help of their partner and expert intermediary, Giving Property. Your property will be appraised to assess its fair market value and this appraisal is what you use to claim on your taxes.
When filing your taxes, you simply complete Form 8283 with the help of your tax or other financial planning professional.
To learn more about donating your real estate to DAV, while maximizing the tax benefits to you, contact us at 844-277-HOME or fill out our form on dav.org/real-estate-donation or click the button below:
This article is for informational purposes only and does not constitute formal advice. Individual tax situations may vary so please contact your tax advisor if needed.