An estimated $300 billion of assets are given to more than 1.3 million 501(c)(3) charities in the U.S. each year, but less than 3 percent of those donations involve real estate equities. However, real estate makes up approximately 43 percent of the estimated $64 trillion in U.S. capital wealth.
Why is there such a disparity between the value of the real estate available and the amount donated to charities? Many times, investors/owners are unaware that donation can be a viable means to dispose of property.
Real Estate Donation Structures and Benefits
Although philanthropic intent should be an overriding factor in any charitable donation, donors can accrue several benefits, such as relief from capital gains taxes; reduction of federal, state, and transfer taxes; elimination of management responsibility; and potential for cash flow. Real estate brokers who facilitate charitable real estate donations may also earn fees through the normal commission process or on
an hourly basis, depending on the service provided. The basic options for structuring real estate gifts, depending on the donor’s particular goals, are:outright gift; bargain sale; charitable remainder trust; bequest; and retained life estate. A charitable remainder trust is another option where a donor deeds the property into an irrevocable trust and receives an income stream. The charity receives the remaining assets upon termination of the trust. CRTs avoid capital gain taxes while receiving a tax deduction and cash flow simultaneously. The charities ultimately benefit from estate planning methods such as bequests and retained life estates.
CCIM Foundation Launches Gifting Program
Through the CCIM Foundation’s gifting program, Real Estate Gifting Realized, problematic real estate donations for any qualified charity can be simplified. Fundraisers may be able to confidently secure the donation of residential and commercial real estate-related assets with less risk and minimal involvement in every gifting option.
CCIM Institute members are well equipped to serve as resources in the charitable real estate donation process. The CCIM education, skill set, and market knowledge give members unique insight into the process of establishing the fair market value for donation properties among other aspects of the transaction. Their services can provide an additional form of income for brokerages. CCIMs who have clients that may benefit from donating property or know of charitable organizations that can benefit from real estate donations can work with the Real Estate Gifting Realized Program to help clients realize the fiscal advantages of disposing of real estate through a charitable contribution.
Due Diligence Aids the Donation Price
The CCIM Foundation assists all parties in the real estate gifting process to ensure each is fully and clearly represented. On the donor side, an attorney, a financial planner, an accountant, and an appraiser make up the representative team. On the donee side, in addition to real estate and legal representatives, specialists such as engineers may be required.
Despite the complications and issues that can arise with real estate donations, with the assistance of qualified commercial real estate experts such as CCIMs, charitable entities have the ability to perform thorough and proper due diligence. Charitable gifting of non-productive real estate assets that are difficult to move may actually be the best exit strategy when weighing such considerations as timing, economics, and public relations.
Duncan Patterson, CCIM, is president of Patterson-Woods & Associates LLC in Greenville, Del. Patterson is a past president of the CCIM Institute and of the CCIM Foundation. He currently serves as a member of the foundation’s Real Estate Gifting Realized program. Contact him at [email protected].