Types of Donations
Realty Gift Fund exclusively accepts gifts of real estate… of any type… from anywhere… excluding timeshares. Properties with a net market value (after deducting any donation costs) of $150,000 will be considered on a deal-by-deal basis, but there is no limit on maximum value. The average market value of properties accepted last year averaged $640,000. At any value, all gifts must be marketable.
Under an outright gift, the value of the property is established by a “qualified appraisal” and the donor will receive donation documents from RGF when the deed is transferred upon closing. These documents, including the qualified appraisal, establish the donor’s tax deduction, in accordance with IRS regulations.
A free and clear mountain cabin, beach home, second home, farm, or any commercial property make easy gifts for both parties.
RGF will make any improvements deemed necessary then resell the property. The excess cash from the sale will be directed as grants to other charitable organizations.
A donor may request a partial payment and donate the balance of the property’s fair market value, which is established by a current qualified appraisal. A payment for less than the fair market value is referred to as a Bargain Sale.
Debt encumbered property, residential or commercial, is an example of transactions typically transferred under a Bargain Sale. A cash payment from Realty Gift Fund allows the donor to extinguish the debt before transfer, and to use any residual cash for personal needs.
At closing, RGF will make a partial payment to the donor and provide donation documents expressing the full fair market value. These donation documents, including the qualified appraisal, indicate the difference between the fair market value and the cash payment received, and establish the donor’s tax deduction in accordance with IRS regulations.
After transfer, RGF will make any improvements deemed necessary then resell the property.
The excess cash from the sale, after recovering the cash payment, will be directed through gifts or grants to other charitable organizations.
A Partial Interest gift of real estate is a donation that conveys less than the entire property to a qualified nonprofit, resulting in the donor and nonprofit becoming joint owners. The nonprofit’s share is conveyed by deed which states the percentage of ownership the donor is gifting. Thereafter, each party has an undivided interest in the entire property according to their respective shares.
The gift portion passes to the nonprofit free of capital gain and depreciation recapture taxes and entitles the donor to a tax deduction against adjusted gross income (AGI) for the appraised value of the partial interest. The appraised value of a partial interest may be subject to a “minority interest discount”.
During the joint ownership period, each owner is obligated for its share of expenses and capital needs, and each is entitled to its share of income and other revenue. Because nonprofits strive to avoid “unrelated business taxable income” which is subject to a special UBTI tax, the gift of a partial interest works best if the property is free of debt.
When the property is sold to a third-party buyer, each owner pays its share of selling costs and prorations and receives its share of net proceeds. Because Realty Gift Fund is a qualified 501(c)3, the nonprofit world receives all of RGF’s portion of the net proceeds. A small share is retained by RGF and the balance is granted by RGF to other nonprofit(s) according to the Partial Interest Donation Agreement signed with the donor.
An advantage of the partial interest gift is that the donor may be able to reinvest its share of sales proceeds in a tax-deferred exchange by directing the donor’s interest to a qualified intermediary, according to the IRS’s Section 1031 rules. If so elected, the donor may avoid and defer all capital gain/depreciation recapture tax related to the liquidation of the property.
| Example: | Total Value | 100% | $2,500,000 |
|---|---|---|---|
| Partial Interest | 30% | 750,000 | |
| Owner’s Retained Interest | 70% | 1,750,000 |
The Donor Advised Fund is a charitable account funded by a donor with a tax-deductible gift to create a cash resource for current and future grant-making to other public charities of the donor’s choice. DAFs are often funded with large one-time gifts from the liquidation of a business or large personal asset but can be funded strategically with smaller gifts made by a donor periodically over time.
Grant making from a Donor Advised Fund occurs over a time period of the donor’s choosing and can be handed down to successive generations within the family, creating a family legacy of giving.
The Donor Advised Fund is often compared to the Private Foundation, the more complex cousin of a DAF. By contrast, a DAF is less expensive to set up and manage, is subject to less stringent IRS regulations, and provides donors more generous tax incentives than for gifts to a Private Foundation1. For this reason, DAFs have been one of the fastest growing types of public charities in America for the last several decades.
The administration of a Donor Advised Fund must be provided by a sponsor licensed to serve in that fiduciary role. In fact, the largest nonprofits in America are DAF sponsors. Most DAF sponsors allow a donor’s personal financial advisor to manage the investments within the account which grows tax-free. Grants from a DAF can be recommended by the donor at any time of the year.
Most large DAF sponsors do not accept gifts of real estate and refer such gifts to a specialized nonprofit like Realty Gift Fund. RGF’s acceptance of the appreciated property provides the tax benefits directly to the donor, and relieves the donor and DAF sponsor of the risk and liability of a complex gift of real estate.
When the property is sold, all of the net cash proceeds from RGF’s charitable process remain within the nonprofit world. A small portion ($20,000 to $30,000) is retained by RGF for its nonprofit operation and the balance is granted by RGF to the donor’s DAF.
America’s largest public charities are Donor Advised Fund sponsors and include:
- Fidelity Charitable
- Schwab Charitable Fund
- National Philanthropic Trust
- Vanguard Charitable
- National Christian Foundation
- American Endowment Foundation
COMPARATIVE TAX TREATMENTS
DONOR ADVISED FUND vs. PRIVATE FOUNDATION
Charitable gifts of noncash assets pass free of capital gain and depreciation recapture taxes.
The tax deduction for a charitable gift of a noncash asset is allowed “in the year of the gift” plus five additional tax periods until the maximum allowable deduction has been used.
Gifts of noncash assets to a Private Foundation are deductible at “cost basis”, while the same gift to a Donor Advised Fund is deductible at “current appraisal”.
Gifts of noncash assets to a Private Foundation are deductible against 20% of a taxpayer’s adjusted gross income, while the same gift to a Donor Advised Fund is deductible against 30% of a taxpayer’s AGI. These different rates can affect the maximum allowable deduction, but primarily determine the speed at which a deduction is taken over six tax periods.
Private Foundations are required to grant at least 5.0% of their assets each year to other qualified nonprofits, while Donor Advised Funds have no such minimum grant requirement.
The source of grants from a Private Foundation must be made public whereas grants from a Donor Advised Fund can be made anonymously.
DISCLAIMER Tax information provided herein is general in nature and does not represent actual tax advice or intend to propose actual tax outcomes. Interested parties must obtain advice from their own qualified independent tax professionals.