Three tax traps when donating real estate to charity
If you’re considering donating a property to charity, we have three potential tax traps you need to make sure to avoid:
- If you donate real estate to a public charity, you generally can deduct the property’s fair market value. But if you donate it to a private foundation, your deduction is limited to the lower of fair market value or your cost basis in the property.
- If the property is subject to a mortgage, you may recognize taxable income for all or a portion of the loan’s value, and charities might not accept mortgaged property because it may trigger unrelated business income tax for them.
- If the charity sells the property within three years, it must report the sale to the IRS. If the price is substantially less than the amount you claimed, the IRS may challenge your deduction, and you could be on the hook for more taxes.
These are only some of the traps that could reduce the tax benefit of your real estate donation. Please contact Jim Komos at 216.831.7171 or jkomos@cp-advisors.com to help ensure that you avoid these and other traps.
Mr. Komos is the Partner-in-Charge of the firm’s Tax Department. He has experience in all facets of taxation for individuals, closely held businesses, their owners and key personnel. His clients are in a wide range of industries, including manufacturing, service, real estate, and construction.
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