Business Issues

Real Estate Gifts

With the upturn in the economy, charitable giving is on the rise. Philanthropy is now a $4 trillion-plus industry, according to the National Center for Charitable Statistics.

Although the majority of donations are cash or securities, real estate can also be donated to nonprofit organizations. Both individuals and corporations may have real estate investments they no longer wish to retain, so at some point commercial real estate professionals may encounter clients who are interested in donating property to charitable organizations. 

A property donation can benefit the owner by lowering transfer expenses, reducing capital gains taxes, and providing charitable deductions at the federal level and sometimes at the state level, depending on state law. 

Gifting Steps

Individuals and companies donate for a number of reasons. For individuals, it may be due to a philanthropic intent, a desire to use and qualify an appreciated asset as a charitable donation for tax deduction purposes, a need for supplemental retirement income, or a desire to establish a legacy for family members. 

Corporations may be looking to provide support in a local community, divest an underperforming asset, utilize the value of the asset as a deferred compensation vehicle for executives, or fulfill philanthropic objectives for public relations purposes. 

At this early stage in the process, the donor should seek the advice of an accountant, attorney, or financial adviser. This person should be someone who has enough information about the donor's financial picture to evaluate the financial impact of the donation and assure the donor that the value of the donation can be utilized as a charitable deduction on the donor's income tax return. A preliminary financial review is of value, as there have been instances where a donation was very large in comparison to an individual's adjusted gross income and therefore a portion of the donation as a charitable deduction was lost.  

Once the donor finalizes the decision to move forward with a donation, a qualified charitable organization must be willing to accept the gift. Qualified charitable organizations are 501(c)(3) entities under the Internal Revenue Code.

This is the stage where real estate donations often break down and where commercial real estate professionals can add value to the process. Most charitable organizations are not knowledgeable about the real estate gifting process. They are concerned about possible risks in taking property, and most don't have the knowledge to undertake the necessary due diligence, handle the transaction, and dispose of or manage the property. They're also concerned about legal and tax issues.

Approximately 80 percent of real estate donations are rejected, even though the average value of a real estate donation is in excess of $500,000. Charities that accept real estate generally resell it and obtain cash, rather than holding and managing the property.              

If a donation makes sense for both the donor and the charity, specific duties are assigned to the appropriate members of both teams through closing. Team members may include brokers, leasing professionals, investment counselors, asset managers, appraisers, environmental engineers, structural engineers, property managers, corporate real estate executives, developers, institutional investors, lenders, and attorneys.

There are several ways to donate real property to a charity, including an outright donation, a bequest under a will, a real estate transfer in exchange for a guaranteed life income under a contract (charitable gift annuity), a charitable remainder trust, a bargain sale, and a retained life estate. The nuances and complexities of each type vary. Therefore, experienced professionals need to be involved in each transaction.

CCIMs and other professionals can learn how to assist clients with real estate donations by attending “Making Transactions Happen With Real Estate Gifting,” a new course offered through CCIM Institute's Ward Center on Real Estate Studies. This program identifies how to assist clients in achieving their donation objectives. As you gain experience in this area, you may become viewed as the “real estate gifting resource” in your market, resulting in business opportunities and valuable public relations exposure for your work.  

 

As part of its mission as a resource for real estate gifting, CCIM Foundation has provided the funds, resources, and expertise to help create a course specifically devoted to real estate charitable donations. “Making Transactions Happen With Real Estate Gifting,” a Ward Center course offered as two, two-hour sessions on April 12 and April 14, presents real estate gifting case studies taught by experts who explain and quantify the vast potential for the real estate gifting sector. To register, go to edchiryoyaku.info/education or see the Ward Center ad on p. 41 of this issue. 

CCIM Foundation is providing this course as a benefit to CCIMs, the Institute, and the nonprofit industry. The Foundation provides services for commercial real estate professionals and nonprofit organizations to help with the gifting process. In addition, the CCIM Foundation can be a recipient of real estate gifts in their entirety, or on a shared basis with other qualified organizations. For more details about the Real Estate Gifting Program, visit RealEstateGifting.org.

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Mary Stark-Hood, JD, CFP

Mary Stark-Hood, JD, CFP, is president of the Hood Group, Inc., and serves as a consultant to the CCIM Foundation. Contact her at [email protected]

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