Gifting Property: Tax Benefits of Real Estate Donations

Gifting property is an option few investors and property owners are aware of. There are many tax benefits to gifting property. This is an overview of tax benefits; however, consult with your CPA or income tax preparer for current information and your specific tax benefit.

The following rules apply to gifting property that is in your own name, with your spouse or other individuals:

Holding property for more than one year classifies it as a long-term capital gain property. You can deduct the full fair market value of the gifted property. Your charitable contribution deduction is limited to 30% of your adjusted gross income.

The excess contribution can be carried forward for up to five years. If the property has been depreciated, the fair market value must be reduced by its accumulated depreciation through the date of gifting property. Fair market value is most commonly determined by an independent appraisal.

If you choose to deduct the cost basis of the gifted property you will be allowed a deduction of 50% of your adjusted gross income. Excess amounts can be carried forward up to 5 years. Your CPA or tax preparer can help you choose the appropriate method based on your cost basis, tax bracket, age and health of donor and whether you plan to make future contributions.

Here are the rules that apply to corporate donors who are gifting property:

If you have a controlling interest in the corporation and the property you are gifting has been held for more than one year, the corporation can deduct up to 10% of the net profit of the corporation.

Excess contributions can be carried forward up to 5 years. The fair market value must be reduced by the amount of accumulated depreciation.

If the corporate has elected “Subchapter S” status, then the contribution allowed will be reported on the individual shareholder’s K-1 and may be deducted on their individual income tax return.

Partnerships, S-Corporations and Limited Liability Companies who are gifting property:

The corporation may not claim a deduction for the gifted property. Rather, the contribution passes to the individual shareholders on a pro-ration based on their percentage of ownership in the S-Corporation. The shareholder can claim this deduction on their individual income tax return. The same limits and carry forward rules apply.

Partnerships and limited liability company contribution rules are the same as with an S-Corporation with one exception: the partners or member can claim a deduction even if they have no basis in the partnership or the limited liability company.

Be sure to consult with your CPA/Attorney for your specific tax benefit if you are considering gifting property.

Michael Schoen can help you obtain the most value for you and the charity you are gifting property to. Whether you are gifting vacant land, a home or commercial building, Michael will ensure a successful completion of the charitable giving process.

Michael Schoen is a Licensed Real Estate Professional who understands all aspects of donating real property to charity. Michael works with the donor and the charity to coordinate a smooth, successful property transfer. Contact Michael Schoen at 248-757-1713 to learn more about donating real estate to charity.