Did you know that real estate can be a powerful tool for charitable giving? Real estate represents a significant share of personal wealth, yet it remains underutilized in philanthropy—largely because the rules and process can be complex, and decisions about property are often emotional as well as financial.
That may begin to shift. As real estate changes hands during the ongoing transfer of wealth, Gen X and Millennial clients are expected to inherit substantial property holdings. At the same time, many families are reassessing assets they already own—particularly second homes or investment properties that have become underused or burdensome.
We are increasingly seeing opportunities to help clients convert appreciated real estate into flexible charitable resources.
Given these dynamics, here are six considerations to keep in mind:
1. Confirm Eligibility for Fair Market Value Deduction
Gifts of long-term capital gain property (property held for one year or more), including real estate, are typically eligible for a charitable deduction at fair market value (subject to AGI limitations) when donated to a public charity, like DuPage Foundation.
2. Understand the Capital Gains Advantage
Real estate can be contributed to a donor-advised fund or other charitable funds at DuPage Foundation. Because the Foundation is a public charity, proceeds from the sale are generally not subject to capital gains tax at the charitable level, allowing the full value to support charitable giving.
3. Engage DuPage Foundation Early
We encourage you to involve DuPage Foundation early in the process. Our team works with donors and their advisor team to evaluate the property, assess feasibility, and structure the gift to align with the donor’s charitable goals. Note, in order to facilitate the complicated real estate process, we require all real estate inquiries to be initiated by September 30 of the calendar year.
4. Evaluate Debt and Tax Complications
Determine whether the property is subject to a mortgage or other liabilities, which can trigger complications like bargain sale treatment and tax consequences. Work with Foundation staff to ensure other requirements like environmental due diligence are conducted.
5. Plan for Proper Documentation and Appraisal
As with any substantial gift, documentation is essential. Prior to transfer, the Foundation will work with the donor to obtain a qualified appraisal to substantiate fair market value. We may also require environmental studies on the property. During the process, appropriate IRS paperwork will be filled out by both parties, and the transfer will be subject to legal review.
6. Avoid Prearranged Sales
Essentially, prior to the gift transfer, the donor may not enter into a binding or substantially negotiated sale. Prearranged transactions may jeopardize the intended tax benefits under IRS assignment of income rules.
While the technical requirements can be nuanced, the benefits can be significant for both your client and the community. DuPage Foundation partners with professional advisors to navigate these gifts efficiently and effectively, helping transform real estate into a meaningful and lasting charitable resource.
Want to learn more about gifts of real estate or other non-traditional assets? Contact Natalie Knight, vice president for advancement, at natalie@dupagefoundation.org or 630.598.5291.
This content is provided for informational purposes only. DuPage Foundation does not provide legal or tax advice and recommends that you consult with your tax and legal advisors and other members of your professional advisor team prior to making a significant charitable gift.
