by Marilyn Kennedy Melia
Special to the Chicago Tribune
If you think all Americans have on their economic minds is
stock market losses and real estate gains, why would charities be any different?
More of them are asking people to consider the roof over their heads as a possible
gift.
"People's stock holdings are down and they are holding on to their cash. Real
estate is the major asset of most people. Real estate is the last untapped bastion for
charities, and they are more interested [in receiving] it," says Chase Magnuson,
President of Real Estate for Charities, a firm in Carlsbad, Calif., that consults with
charities on real estate donations.
The typical middle-income American whose only real estate holding is the non-mortgaged
portion of his home is not in the position to donate that valuable asset. But, Magnuson
notes, there are plenty of people who own second homes, have inherited a house, hold
vacant land or own a small apartment building who would want to give their holding away.
"The profile of the typical donor is someone 65 or older with a net worth between
$600,000 and $3 million," Magnuson says. "They are also philanthropically
inclined and don't have many heirs."
And, real estate donors typically fit another profile: They're interested in receiving
a significant tax break.
Although there are tax advantages, experts say an individual's primary motive for
giving real estate should be altruistic. "The bottom line is this: If someone has a
personal conviction to support a charitable cause, giving appreciated real estate is a
great deal for them and the charity," says J. David Lewis, president of Resource
Advisory Services Inc., Knoxville, Tenn.
For many donors, like James Wilson who owned and rented a Chicago two-flat for many
years, the impetus for giving is a combination of personal, financial and charitable
considerations. "I retired and didn't want the responsibility of being a landlord
anymore," Wilson said. "I decided this would be a good way out, and I chose
Habitat for Humanity [to receive proceeds from the donation]."
Wilson donated through Donate Real Estate, in Pontiac, Mich., after he heard a radio
commercial the company aired earlier this year. "We investigate the property to see
if the title is clear and to see if there are environmental problems," says Michael
Kashian, executive director of Donate Real Estate. "Then if the property looks OK, we
deed it to one of the charities we're affiliated with and the donor takes a deduction for
the highest appreciated value they can get on the property."
Annual deductions on donated real estate are limited, though, to 30 percent of the
adjusted gross income of the donor, Kashian notes, but deductions can be spread out over
five years. "If your income is $100,000, you can deduct $33,000 the first year,
$33,000 the next, and so on," he explains.
That's a straight-forward method of taking a deduction for a real estate donation, but
as with most tax matters, there are complex alternatives. Individuals can also deduct the
cost basis of the donated property, and can then take a deduction of 50 percent of gross
income over five years. An individual should never give real estate without first
consulting with an attorney, Magnuson advises. Moreover, a reputable charity will insist
on the donor seeking counsel, he says. "If a charity says, `We do this all the time,
you don't need someone to advise you,' then be skeptical," he warns.
"Charities have to be careful about accepting real estate and individuals have to
be careful when they're giving," says Terry Simmons, senior partner in the Dallas law
firm of Thompson & Knight. "If you give property that's debt-encumbered, for
instance, it may be treated as a bargain sale transaction and you may have to pay a big
tax." Moreover, charities won't accept properties riddled with environmental
pollutants or other potential liabilities.
Charities must be careful about accepting property even though most non-profit groups
don't actually hang on to donated real estate, but sell it for the proceeds.
Address questions to:
Financing, Chicago Tribune, Real Estate section,
435 N. Michigan Ave., 4th Floor, Chicago, IL 60611. You may also e-mail realestate@tribune.com. Copyright (c) 2002,
Chicago Tribune
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