Real Estate Gifts

March 11, 2019

Will Rogers famously exclaimed “Buy land. They ain’t making any more of the stuff”. For those of us seeking to encourage creative generosity, we might paraphrase this to say – “give land, or any other type of real estate, and receive a great tax benefit”. Just like gifts of securities, real estate can provide donors with many of the same giving benefits.

Real estate is often the single largest asset held by the average family. At year-end 2013, it is estimated that American households owned approximately $19 trillion in residential/farm types of real estate.

For your donors, making a gift of real estate is relatively easy. (As we will see in a moment, the decision by the church to accept a gift of real estate can be more difficult.) Although normally, an attorney will need to be involved to legally convey title to the property from the donor to the church.

Generally speaking, if the donor has held the property for more than one year, they may be entitled to a tax deduction for fair market value. They also may avoid any capital gains tax on the appreciation. However, many additional factors could determine the final value of their charitable deduction, possibly lowering it. Donors need specialized tax advice when making gifts of real estate.

Compared to the donor, the church will typically have a much wider array of issues to ponder when deciding to accept a gift of real estate. (For this and many other reasons, having a set of adopted “gift acceptance policies” in place can be a huge help). The church should approach the gift of real estate exactly the same way it would approach the purchase of real estate – by doing extensive due diligence, especially in areas such as:

  • Assessing environmental risks
  • Ensuring clear title
  • Evaluating ongoing operational costs (maintenance, insurance, taxes)

In addition, there is another pitfall to be avoided – the “prearranged sale”. Often, donors may approach the church with a gift of real estate and suggest they already have a buyer “waiting in the wings” to facilitate the church’s selling the property to obtain cash. If the IRS deems this to be a “prearranged sale”, they may disallow the donor’s charitable deduction, creating an unpleasant result for everyone.

Given all of the above challenges, one might legitimately ask “is it worth it”? Despite the challenges, in most cases the answer is “yes”! Often, some of the largest gifts that para-church ministries receive are in the form of real estate. At CGS we have witnessed gifts ranging from single residential building lots valued at $50,000 to lakeside vacation homes approaching seven figures. Your local church can have these same opportunities if you are positioned to receive them.

Real estate also presents some very creative charitable gifting strategies. For example, the donor may not want (or be able) to donate the entire property. If this is the case, they have the option to donate only a portion of the asset through strategies known as the bargain sale or a gift of a divided or undivided interest. For many donors, the recognition that it’s not “all or nothing” is often the tipping point that allows them to seriously consider the gift in the first place. It gives the donor more latitude to make the numbers work for their own financial planning.

As with all non-cash gifts, the key to receiving them is to let your congregation know that you are interested and able to receive gifts of real estate. Something as simple as a quarterly bulletin announcement inviting gifts of real estate would be a good starting point. Help people understand that a hard asset, like real estate, can be transformed into productive ministry that will impact lives for eternity!