Understanding real estate gifts

By Bill Walter

Just like gifts of securities, real estate can provide donors with many of the same major giving benefits.

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) — make a generous donation, and receive a great tax benefit.”

Just like gifts of securities, real estate can provide donors with many of the same major giving benefits.

Considerations for donors
Real estate is often the single largest asset held by the average family. At year-end 2013, it is estimated that American households owned about $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 church’s decision to accept a gift of real estate can be more difficult.) 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 any real estate type of gift.

Church considerations
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.

Is it worth it?
Given all these 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 parachurch ministries receive are in the form of real estate. My own 40-year experience as a charitable gift consultant has 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 it is 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 “in the game.” 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!

Bill Walter is a Certified Financial Planner (CFP) and president of Church Growth Services, a capital campaign consultancy located in South Bend, IN.

The information contained in this article is not intended to be legal or accounting advice; it is for educational purposes only. Individuals are encouraged to contact their own tax and legal professionals regarding the subjects presented.