Dec 1, 2011 12:00 PM

By Laura H. Peebles

Given the current real estate market, some owners are feeling more charitably inclined than they used to be. The thought crossing their minds is something along the lines of, “Well, if I can't sell it, maybe I can donate it and get some benefit through a tax deduction.” Some donations then proceed relatively smoothly — like the donation of an apartment building conveniently located near a university to use as a dorm or a lot adjacent to a school to expand its playground. The donations that go smoothly share a number of commonalities: a willing donor, an interested donee, no mortgage, no environmental issues and realistic expectations of value for the tax deduction. If any of these factors are lacking, either the donation process will be difficult, or it may not be completed at all.

If the property is subject to a mortgage, the mortgage holder may not allow the donation. Even if the mortgage holder does allow it, the “bargain sale” tax rules may reduce the net value of the donation to the point that the donor will reap no tax benefit (or even incur a tax bill). These rules treat the amount of the mortgage as if it were cash proceeds and, therefore, trigger some or all of any gain upon donation. This is true even if the mortgaged real estate is inside a partnership or limited liability company.¹ If the mortgage is relatively low compared with the net value of the property, it may still make sense to proceed with the donation, since the charitable deduction may more than offset the recognized gain. If the property subject to the mortgage would be sold at a loss, rather than a gain, the loss can't be recognized.²

Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
2010 Tax Act News	Industry Trends Surveys

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Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
2010 Tax Act News	Industry Trends Surveys

E-Newsletter Signup

2011 Trust Glossary

Click here to download the 2011 Trust Glossary

50 Years Ago This Month

Click here to read the issue.

50 years ago, in May 1962, we featured articles such as: "Future of Canadian Trusteeship" by Arthur H. Mingay", "Training Trust Employees" by Ian M. Marr, "What is a Trust Officer?" by Eric J. Brown, and "Selling Services" by Donald I. Webb.

Conrad Teitell's Guide to Tax Benefits For Charitable Gifts

Click here to view the most up to date guide (September 2011)

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