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Are Fundraisers Missing Out on Gifts of Real Estate?

It sure looks it. Why? Many  are scared even to tip-toe into what they think is unfamiliar territory. To get to the bottom of this issue, we spoke to Chase Magnuson and Dennis Haber.

They agree the trouble is the incessant cacophony of “mythconceptions” that surround making and receiving gifts of real estate. Sure, the stories are bunk and noise, but repeated frequently and loudly enough by peers, these myths take on an aura of truth.

But don’t let it get in your way. Hogwash is hogwash. Here’s some wisdom you should listen to. Chase and Dennis share five common mythconceptions, plus five doses of fact that free you to succeed with gifts of real estate, and further your career.

Yes. They Are Missing Out.

Mythconception #1:

The charity must hold the donated property for three years before it can be sold.

Fact: The charity can dispose of the property anytime. It does not have to wait for three years. If the property is sold within three years the charity must complete and file IRS Form 8282 with the Internal Revenue Service upon disposition.

Mythconception #2:

Donated property can’t have any debt.

Fact: To the contrary, donated property usually is encumbered with debt.  One sees this a lot in a straight donation or bargain sale situation.  Even in those instances where debt is prohibited, there are well-defined exceptions to this mythconception, and work-arounds for proactive fundraisers.

Mythconception #3:

The nonprofit must take title to the property.

Fact: While this is a logical assumption, it is not true. Two tax court cases have clearly and definitively established the rule that an exempt organization does not have to take title to the property. Instead the charity can instruct the donor to convey ultimate title in the name of the purchaser, pursuant to the contract of sale between donor and charity, to individual obtained by said charity. This is called a “directed close” and can only be used as long as the charity is not considered an “agent” of the donor.  Two other approaches that may be used is the charity forming a 509(a)(3) or supporting organization, or a single member LLC.

Mythconception #4:

The charity can’t reimburse the donor for his/her appraisal fee.

Fact: Once the donation is completed the charity can reimburse the donor for the appraisal but the donor will have to pay tax on it. She will receive a 1099 Form in the amount of the reimbursement.

Mythconception #5:

The donor must give 100% of his equity to one charity.

Fact: The donor can divide his charitable contribution among any number of charities.

Another fact: continuing to do the same thing will never yield a different result. We are sharing with you the key to a more rewarding professional future. Are you going to continue to imitate an octopus on roller-skates (lots of movement, no progress) – or will you use the key to unlock the door?

1 comment

To Chase and Dennis:

I’m intrigued with the concept of the “directed close” for transferring gifted real estate keeping the charity out of the chain of title. Would you please provide me references to the tax court case rulings and any other links that may help me better understand how it works?

Thank you. Happy Holidays.

John

John C. Scibek
Senior Director, Planned Giving
Fred Hutchinson Cancer Research Center
1100 Fairview Ave. N., J5-200
PO Box 19024
Seattle, WA 98109-1024

Phone: 206.667.2878, Cell: 602.295.0759
Toll Free: 800.279.1618 x2878
Fax: 206.667.5826

jscibek@fhcrc.org
http://www.fredhutch.org/plannedgiving

DISCLOSURE: This e-mail message, including any attachments, is not to be considered legal, accounting, investment or financial advice; it is solely informational.

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