Thinking of selling your home, commercial building, or investment property? Enjoy tax benefits, generate income, and help the chapter with a gift of real estate.
Is giving Real Estate Right for You?
- Do you own residential, commercial, or undeveloped real estate that has appreciated in value—and you no longer wish to manage or maintain it?
- Has your home risen in value beyond the capital gains exclusion rate?
- Do you have a vacation home that your family no longer uses?
- Would you like to use your real property to pay income to you for life?
If you are interested in making a gift to the chapter and your answer to any of these questions is “yes,” a gift of real estate may be a good option for you.
The benefits of a gift of real estate
There are several ways you can donate real estate. Each method presents distinct advantages, depending on your circumstances and goals.
By giving property to the chapter, you can avoid or reduce the capital gains tax you would otherwise pay on sale, you may be able to take a substantial income tax deduction, you may choose to receive income for life, and you will have the satisfaction of providing significant support to the university.
A few things to know before making a gift of real estate:
- In general, it is typically the chapter’s policy to sell gift property rather than maintain and manage it.
- Before accepting any gift of real estate, a chapter representative must inspect your property to determine whether it can be sold within a reasonable amount of time and to ensure that there are no significant liabilities associated with it.
- If you intend to claim a charitable income tax deduction for your gift of real property, the IRS will require you to obtain an independent, qualified appraisal to determine the property’s fair market value.
- Due to tax issues, debt-encumbered property is usually not appropriate for a charitable gift of real estate.
Options for giving a gift of real estate
There are five primary ways to give a gift of real estate to the chapter. These options are described in full below:
Give your residence, rental/commercial property, or undeveloped land outright to the chapter
Once the chapter has agreed to accept a gift of real estate, you may give a partial or full interest in your property by simply executing and recording a deed naming the chapter as the new owner.
Give property to establish a charitable remainder trust
By establishing a charitable remainder trust, you can provide for a future gift to the chapter while receiving a tax deduction and a long-term income stream. When you give real property to establish a charitable remainder trust, the trustee, which could be the chapter, can sell the property without paying capital gains tax. The full proceeds from the sale can then be invested by the trustee and used to pay you and/or your beneficiaries an income for life or for a term of years. After your lifetime or when the trust term ends, the remaining funds will pass to the university to be used for the purpose(s) you designate. You may also be able to use a partial interest in the real property to fund the trust, and retain the cash proceeds from the sale of the remaining interest in the property.
Make a gift of a remainder interest in your home
A gift of a remainder interest in your home may be right for you if you wish to continue to live in your home for your lifetime. With this arrangement (sometimes called a retained life estate), you transfer a remainder interest to the chapter, which entitles you to a significant income tax deduction. You also enter into an agreement with Stanford that you will continue to perform all obligations of ownership, such as paying taxes and insurance. When the property comes to the chapter, without probate or other administrative procedures, it will use the proceeds of the sale as you have instructed.
Sell your property to the chapter at a discounted price, also known as a bargain sale
In some limited circumstances, the chapter will purchase property at a discounted price—typically not more than 50 percent of its fair market value. The difference between the price the chapter pays and the fair market value (as determined by appraisal) constitutes the gift to the chapter, which entitles you to an income tax deduction. This also provides you with cash from the purchase by the chapter.
Leave property to the chapter through a bequest
You can make a gift of real estate through a provision in your will or revocable trust agreement. Once the chapter receives the property, it is generally sold and the proceeds are used according to the purposes outlined in the bequest documents.
EXAMPLE:
John Doe wants to make a gift in memory of his father, a chapter alumnus. He also happens to have an undeveloped piece of land that he no longer wants. The land, which he bought for $100,000 several years ago, is now worth $400,000. If John was to sell his land, he would pay a considerable amount of capital gains tax (at least $45,000 in federal tax). Instead, John decides to give the property to the chapter, stipulating that the chapter use the proceeds from the sale of the property to set up an endowed scholarship in his father’s name. He is entitled to a charitable income tax deduction for the full market value (as determined by an independent appraiser), he does not pay capital gains tax, and he is able to make a sizable gift to the university. When the chapter sells the property, it will not pay any capital gains tax since it is a tax-exempt charity. The full amount of the proceeds (less any selling expenses) will be allocated to the endowed scholarship fund.
Learn how you can support your chapter by contacting Matt Noble of Fraternity Management Group at matt.noble@fmgtucson.com.