Donating Real Estate

Posted on November 10, 2014 by in Taxes

Donating Real Estate

We are all aware that taxpayers can benefit by both donating cash and non-cash items such as clothing, furniture, and appliances to Goodwill or The Salvation Army. But what about larger items such as real estate?  What about a house?

The majority of taxpayer’s do not have a large real estate portfolio that they are looking to unload but many have a second home or maybe a home they inherited after the death of a loved one.   There are many costs that go into owning real estate…property taxes, maintenance costs, and income taxes and then if the property is sold…legal fees, brokerage fees, not mention capital gains tax, inheritance tax and estate tax.  These costs and the headache of keeping up with it all may make simply donating the property the better choice.  The taxpayer gains a tax deduction while helping out the community as well.

In order to donate Real Estate, the taxpayer will need an appraisal and in some cases the appraisal will need to be attached to Form 8283 and submitted with the tax return. The following terms and limitations apply:

  • All expenses related to the donation are the responsibility of the donor in most cases.
  • The property should be long term (held for at least 1 year).
  • The donation value is FMV up to 30% of the taxpayer’s AGI or cost basis up to 50% of the taxpayer’s AGI.
  • Total donations exceeding the taxpayer’s limit are carried over for up to 5 years.
  • If the donated property has been depreciated, the donation is reduced by the amount of depreciation that would be recaptured as ordinary income if the property were sold.
  • Different limits apply to Corporate and Partnership donors.

For additional support:

http://helpinghandsofamerica.org/real_estate_donation_details

http://greenpeace.givingplan.net/pp/giving-real-estate/3070

http://www.irs.gov/publications/p526/ar02.html#en_US_2013_publink1000229755

 

Deconstruction of Real Estate

Another option available to taxpayer’s as a donation is deconstruction. I am sure you have noticed all around us in our area of the Heights, home are being demolished and rebuilt.  Rather than totally knocking down a house and receiving no tax benefit, a taxpayer can bring in a trained deconstruction crew and salvage many reusable items such as doors, windows, cabinets, lighting, lumber, and flooring to name a few.  This option allows the taxpayer to receive a deduction and keeps these reusable materials out of our landfills.

In order to donate via Deconstruction, the taxpayer will need a qualified appraiser to value the materials in the home and assess a value. If you choose to move forward with deconstruction rather than demolition a Deconstruction Contractor will need to prepare a bid for Deconstruction.  A donation letter should be submitted to the receiving organization which can provide the taxpayer with a receipt for their donation.  Form 8283 is completed.

For additional support:

http://www.thereusepeople.org/deconstruction

 

Other Factors to Consider

Regardless of which donation choice is chosen by the taxpayer, it is important to take into consideration that based on AGI, the taxpayer’s Itemized Deductions could be greatly limited and while Charitable Donations are not a preference item for AMT, the taxpayer would receive a higher deduction if larger donations were to be put off to a tax year where the taxpayer is not subject to AMT.

For additional support on Itemized Deduction limitations:

http://www.irs.gov/publications/p17/ch29.html

For additional support on how AMT affects charitable giving:

http://programforgiving.org/charitable/pages/understandingAMTImpact.jsp

 

 

 

 

 

CUT TAX RETURNS WITH NONCASH DONATIONS

Posted on September 10, 2014 by in Government, Planning, Strategy, Taxes

CUT TAX RETURNS WITH NONCASH DONATIONS

 

By: Denise Frazier, CPA

 

You see.  You buy.  You wear twice and immediately fall out of love.  What’s to become of those barely-worn Stuart Weitzman heels?  There is value in those once-fabulous fashion pieces that are out of season, no longer fit, or just don’t do it for you anymore.  How much are those heels worth?  More than you think.

 

Properly valued noncash donations are often an overlooked source of deductions on tax returns and could shave hundreds off your tax bill.  Many taxpayers don’t fully understand what documentation is needed for noncash donations or think the process takes too much effort.   If you plan to itemize your deductions this year, follow these suggestions to make noncash donations a painless and worthwhile endeavor.

 

HUNT & GATHER

Fall months are a great time to clean out closets and cabinets. Take a look around the house and collect unused items, or those things the family no longer needs.  Everything from furniture to that bread maker collecting dust and children’s sporting equipment, toys and clothing they have outgrown all have value. It goes without saying that items must be in working condition, contain all of their pieces and parts, and be free of rips and stains.

 

TAG & BAG

Meeting record keeping requirements of charitable contributions is simple.  As each item is placed in boxes or bags for transport, use a spreadsheet to log the donated item, quantity and brief description.  Is it a man’s suit, a child’s winter coat, a lady’s leather handbag?  Take photographs of high-value items such as electronics, furniture and appliances.  In addition to the description of each item, market value must be indicated.  Well-known charitable organizations such as Goodwill and the Salvation Army have thrift shop value guides on their websites which provide assistance when calculating thrift shop value.  As an example, an overcoat could fetch $60. Unlike thrift shop value, fair market value is the price the item would sell for at a garage sale or on eBay.  A conservative rule of thumb for determining fair market value is approximately one third of the original price.  Be sure to keep this donated item log in your files.

 

DROP & GO

Items have been gathered, recorded with a brief description, packed and are now ready for drop off to a qualified, non-profit charitable organizations. Churches, educational organizations such as the Boy or Girl Scouts, the United Way or war veterans’ organizations are some examples of qualified organizations. Most charitable groups typically provide a written receipt for donations. The receipt should indicate the name and address of the organization and the date of the donation.   What the receipt won’t include is a list of the items or their estimated fair market value.  Take the charitable donation receipt and simply attach it to the donated item log you created and file these away with tax records.

 

If total noncash deductions for the year is more than $500, Form 8283, Noncash Charitable Donations, must be filed with the tax return.  There is no limit when making noncash contributions but proper documentation of donated goods are an essential part of smart tax keeping and staying off the IRS radar.

Frazier joined Cooper CPA Group in 2005 and has more than 18 years of general accounting experience with a focus on small and mid-sized businesses. www.CooperCPAGroup.com

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