Charitable Donations of Real Estate
It is no secret how difficult the last few years have been for most people. However, as we pull out of the economic recession, some people are facing decisions on what to do with certain assets that are now significantly devalued.
Some investors who speculated in land or real estate now may be holding investments that are no longer good investment options and it may be time to abandon the idea that the holding will make a return on the investment. In this situation the owner may be considering donating the land as the way to deal with this investment, however, it may not be the best option.
For example, let’s say a person bought a parcel of land as investment property near the height of the real estate bubble and paid $100,000 for the land. Presently the fair market value of the land is $25,000. If this person donates the land to the church, he or she can realize a donation of $25,000, not the $100,000 that was originally paid. Also, he or she cannot realize a loss of $75,000 for the declined value of the asset. However, a sale of the property at $25,000 would realize better results. The owner could then donate the $25,000 to the church and take the charitable contribution deduction. The added benefit to this is the owner would also have a $75,000 investment loss that could offset that amount in investment gains. The loss could also be used to offset ordinary income, but is usually limited to the amount of investment gains (if any) plus $3,000 of ordinary income per year (filing jointly).
In this example it is clear that selling the property is a better financial move than donating it. Remember, if you have any questions it is always better to consult a tax professional.
It is no secret how difficult the last few years have been for most people. However, as we pull out of the economic recession, some people are facing decisions on what to do with certain assets that are now significantly devalued.
Some investors who speculated in land or real estate now may be holding investments that are no longer good investment options and it may be time to abandon the idea that the holding will make a return on the investment. In this situation the owner may be considering donating the land as the way to deal with this investment, however, it may not be the best option.
For example, let’s say a person bought a parcel of land as investment property near the height of the real estate bubble and paid $100,000 for the land. Presently the fair market value of the land is $25,000. If this person donates the land to the church, he or she can realize a donation of $25,000, not the $100,000 that was originally paid. Also, he or she cannot realize a loss of $75,000 for the declined value of the asset. However, a sale of the property at $25,000 would realize better results. The owner could then donate the $25,000 to the church and take the charitable contribution deduction. The added benefit to this is the owner would also have a $75,000 investment loss that could offset that amount in investment gains. The loss could also be used to offset ordinary income, but is usually limited to the amount of investment gains (if any) plus $3,000 of ordinary income per year (filing jointly).
In this example it is clear that selling the property is a better financial move than donating it. Remember, if you have any questions it is always better to consult a tax professional.