Real estate can offer financial and philanthropic benefits

Current real estate market conditions have people assessing how to leverage their appreciated holdings.

That might mean tapping the equity for upgrades or improvements. It could also mean utilizing real estate gains to achieve philanthropic and financial goals.

Real estate donations are a great way to leave a philanthropic legacy to support causes donors care about, while still reaping financial benefits. Donors have the potential to eliminate or reduce tax on the capital gains, receive an income tax deduction, reduce homeownership expenses and remove a taxable asset from their estate.

Increasingly donors are giving real estate assets to colleges and universities. From fiscal year 2016 to fiscal year 2020, public and private U.S. colleges and universities received more than 3,630 real estate gifts valued at $928 million from donors, according to survey data from the Council for Advancement and Support of Education.

Individuals looking to retire, downsize or simplify their lives have an opportunity to donate real estate that supports growth of education and converts donations to scholarships or research, so it’s a win-win situation for all.

Different philanthropic options are best suited for various stages of the market. Charitable remainder trusts are a great option in the current market cycle with high property values because it may result in a significant tax deduction and still provide an income stream while the donor is living.

For example, if John and Jane Smith bought a vacation home in Phoenix for $50,000 in 1970, and they now want to sell it they would need to consider their tax implications. If the home is now worth $1 million, the capital gains taxes of at least $200,000 they would have to pay the IRS from the sale would greatly reduce their profit. If the Smiths use the house to fund a charitable remainder trust with the ASU Foundation, they will be able to take a significant tax deduction and receive regular payments from the full amount of sales proceeds.

Charitable remainder trusts are tax-exempt so when the trust sells the Smiths’ home there is no immediate capital gains tax and the entirety proceeds will be invested by the trust. The Smiths will receive an income stream from the trust based on a percentage of the trust value for the remainder of their lives. When the trust concludes, the money will be used to support a cause at ASU that is important to the Smiths.

In addition to chartable remainder trusts, donors can outright donate their property directly. They can also give real estate through their will or living trust. In Arizona, and many other states, donors can use a Beneficiary Deed. This deed is recorded now but doesn’t transfer the property until the donor dies. Some donors will choose to sell their real estate to the ASU Foundation at below market prices. In such cases, the donor gets some cash from the sale and also gets a tax deduction for the amount of the discount. When the ASU Foundation sells the property, they use the profit for the charitable purposes.

The ASU Foundation is able to consider a wide range of real estate gifts, including primary residences, vacation homes, office buildings, ranches, industrial property and undeveloped land. The team can discuss your options and provide calculations. You should consult a licensed tax professional for personalized advice.

To learn more about gifts of real estate to ASU, click here.