Real Estate

A building for sale.Do you own debt-free real estate (residential, agricultural, industrial, or undeveloped) available to you for gifting purposes? If the answer is yes, you have four basic options:

  1. You can give it outright, and the foundation handles the sale, delivering the sales proceeds to the school, department, fund, or designation you make.
  2. You can give it, the foundation sells it, and you receive income.
  3. You can give it and live in, use, or rent it out the rest of your life.
  4. You can sell it at a discount to the foundation, which in turn sells it and applies the gross proceeds to your designation.

Option 1: Outright Gift

Donating real estate outright provides the donor three benefits:

  • The donor receives a charitable deduction equal to the fair market value of the property.
  • The donor avoids recognizing the appreciation and sale on their tax return, reducing taxes that would be due on the sale.
  • The donor removes themselves from the risk, uncertainty, and hassle of selling the property.

Option 2: Give It and Receive Income

  • The donor establishes a charitable remainder trust and donates the property, avoiding recognition of the appreciation and sale on their tax return.
  • The donor selects one or more income beneficiaries (themselves often being one of them), to receive variable income for either lifetime or a term of years.
  • The donor receives a charitable deduction equal to the fair market value less the value of projected income to be received.
  • The trustee (which can be UMBF) markets and sells the property, invests the proceeds in a balanced portfolio, and begins paying income to beneficiaries.
  • At the end of the income period, the trust remainder goes to the school, department, fund, or designation of the donor.

Option 3: Give It and Live In It for Life

  • The donor transfers title of the property to the foundation, and retains life tenancy rights of the property, called a retained life estate gift, and receives an immediate deduction equal to the remainder value of the property.
  • The donor continues to live in, use, rent out the property during their lifetime(s), and also continues to pay taxes, insurance, and maintenance costs.
  • If the donor wishes to move or relinquish tenancy rights, they can request a joint sale, which subsequently gives the donor two options:
    1. Receiving cash proceeds from the sale representing their remaining life tenancy.
    2. Receiving a second, new charitable deduction equal to the life tenancy value being surrendered.
  • After the property is sold, the proceeds are delivered to the school, department, fund, or designation selected by the donor.

Option 4: Sell the Property at a Discount to the Foundation

  • The donor sells the property to the foundation at a discounted price, typically not more than half its fair market value, called a bargain sale.
  • The difference between what the foundation pays and the fair market value is allowable as a charitable deduction on the donor’s tax return. For example, if the foundation paid a donor $150,000 for a property valued at $500,000, the donor would receive a charitable deduction of $350,000.
  • The foundation sells the property, reimburses itself for the purchase cost, and directs the remaining sales proceeds to the designation of the donor’s choice.