Last Updated Aug 17, 2009 1:28 PM EDT
- Consult with a financial planner to gain the maximum tax benefit. The boom-time wisdom was to give appreciated real estate straight to charity -- as opposed to selling it and giving the charity the proceeds -- because that way you avoided paying capital gains taxes. In today's market, however, many properties may have dropped in value. Check with your financial planner before you try to avoid taxes that may be nonexistent in the first place.
- Work with the charity to set up the property's final use. Earlier this year, the Nature Conservancy donated 34 acres of land on Maui to form a gateway to Haleakala National Park -- land that was always intended by the original donor for that purpose. "We are donating the property and not selling it," Suzanne Case, the executive director for the Nature Conservancy Hawai'i, has been quoted as saying, noting that because of the charity's arrangements and long history with the donor, "we felt a special obligation to honor our commitment."
- Get an independent appraisal of the property's worth. According to the IRS, appraisals by employees of the receiving foundation don't count.
- Don't forget about your mortgage. If you own a property worth $500,000 and you have a $200,000 mortgage, you don't have $500,000 to give -- you only have your $300,000 equity! The typical transfer in cases like this is called a "bargain sale" -- where the charity takes the property at less than market value and gets rid of the mortgage. The Toledo Community Foundation notes that the IRS views these transactions as part sale and part gift -- which changes their impact on your taxes.
- Don't assume that someone else will keep your paperwork. As a real estate agent, I find that mortgage lenders lose ownership paperwork (such as an owner's proprietary lease on a co-op), all the time. The situation gets especially bad when one bank buys another. Similarly, if you're dealing with a charity, Brian O'Connell of Mainstreet.com recommends that you still be the one to safeguard your paperwork, such as title.
- Don't donate an asset that you think you might need to tap later. I remember hanging out with a Harvard friend who had made a huge and splashy donation to a nonprofit at the top of the market -- and watching him, at the bottom of the market, wish he had his money back. Gifts to charity tend to be irrevocable, and this is especially true of real estate, which is often given through trust structures such as a Charitable Remainder Unitrust, or CRUT. It's important to lend others a helping hand, but don't tie your own hands in the process.