Why Now & How: Gifts of Real Estate

Discover why now may be the perfect time to make this tax-savvy charitable gift and how it works.

As with other facets of the pandemic economy, the U.S. housing market has defied expectations with its strong performance that, thus far, shows no signs of stopping soon. A confluence of social and economic factors – including steep homebuyer demand, limited housing inventory, historically low mortgage rates,1 and shifting demographic trends – has created an environment the New York Times recently called “not for the faint of heart.” According to real estate website Zillow, U.S. home values rose by more than 11% between March 2020 and March 2021,2 and are forecast to surge another 12% in the coming year. With the Federal Reserve expected to keep interest rates low for the foreseeable future,3 and new home-builds lagging,4 current trends are widely predicted to hold in the near-term.

WHY DONATE REAL ESTATE TO CHARITY NOW?

One upshot of these remarkable dynamics is that, if you own real estate that you’ve held for at least one year, you’ve likely seen its value appreciate considerably. For the charitably-inclined, such gains in property values – coupled with a fiercely seller-friendly market in many locales – may make this a particularly good time to consider a charitable gift of real estate.

 

When properly structured, a gift of real estate to a qualified public charity can be a highly effective means of meeting personal financial and philanthropic goals, offering potential tax advantages and other benefits to the donor while also providing meaningful support for the charities they care most about – like Duke! Subject to certain criteria, Duke is able to accept gifts of many types of real estate, including personal or vacation homes, rental and commercial properties, farms and undeveloped land. In the right circumstances, such gifts are often mutually beneficial for both the donor and Duke.

HOW TO DONATE REAL ESTATE TO CHARITY

With most gifts of real estate to Duke where the donor has owned the property for at least one year, the donor receives a federal charitable income tax deduction equal to the property’s full fair market value. For deduction purposes, the property’s value would be determined by a “qualified appraisal” which must be conducted within a specified period related to the timing of the gift.

The donor also avoids paying federal capital gains taxes they would otherwise owe upon selling the property, a potentially significant savings where the property in question is highly appreciated. Additionally, the donor may eliminate maintenance costs and other burdens of ownership often associated with rental property, commercial property or raw land. Depending on where the property is located, state and local tax benefits may also apply.

Duke typically sells gifted real estate, though it may decide to hold parcels for a period of time, especially if they are adjacent to or near campus. The university pays no taxes on the sale proceeds, which are then used on campus as the donor has directed – for example, to establish a named financial aid scholarship or to provide current support for a particular school or unit. In addition to a direct gift, real estate may also be used to establish a special type of charitable trust that pays a lifetime income to the donor first; when the income beneficiary passes away, the assets remaining in the trust are transferred to Duke and used according to the donor’s wishes.

Charitable gifts of real estate may yield tax savings for you and can result in a larger gift to Duke than you dreamed possible. Duke welcomes any and all real estate gift proposals, so please let us know if you’d like to discuss how this strategy might fit into your plans.


1 From CNN Business article, “Mortgage rates kick off 2021 with a new record low” by Anna Bahney, January 2021

2 From Zillow.com, United States Home Values

3 From Business Insider article, “The latest Federal Reserve meeting suggests mortgage rates will stay low for the foreseeable future” by Laura Grace Tarpley, May 2021

4 From CNBC article, “Home construction sees biggest drop since pandemic hit. Here’s why” by Diana Olick, May 2021

TAGS: low interest rates real estate gift real estate Real estate gifts

About the author

Nan Futrell '07

gretchen.s.futrell@duke.edu

Nan helps alumni and friends of Duke explore tax-efficient ways to support key priorities they share in common with the University, often through retirement and estate planning. A North Carolina native and third generation Duke graduate, Nan joined the Office of Gift Planning after completing a two-year clerkship in the chambers of Chief Judge Linda McGee at the North Carolina Court of Appeals. She previously worked as a staff attorney at a non-profit in Washington, D.C., focusing on First Amendment church-state issues.

Nan received her law degree from the University of North Carolina and her undergraduate degree from Duke, with majors in History and Religion and a certificate in Policy Journalism and Media Studies. She lives in Raleigh with her husband and their two sons.