Real Estate Donations In Your Capital Campaign
PMA has observed some campaigns getting a boost from the contribution of land. The collapse of the real estate market – and the impact on Charlotte’s banking industry in particular – has resulted in land acquisition opportunities that wouldn’t have been possible just five years ago.
Lands once designated for development are now considered speculative land holdings, and some landowners see contributing that land and taking a tax write-off as a means to mitigate financial losses. Organizations that understand the benefits of land donations for both individuals and the corporate variety will add a viable option to their capital campaign efforts.
Individuals can deduct the full fair market value of a donated property if it has been held for more than one year, as it is classified as long-term capital gain property. While the charitable deduction is limited to various percentages of a donors adjusted gross income (AGI), excess value can be carried forward for up to five years. An important note, the fair market value must be reduced by its accumulated depreciation through the date of contribution, if the property had been depreciated.
Deducting the cost basis of the property allows individuals a fifty percent deduction of their AGI. Again, excess value has a five-year carryover window. Organizations should recommend donors speak with their tax professional as each case is unique to many factors, including age, health and future contribution strategies.
For donors who have held a controlling interest in the corporation, up to ten percent of the net profit of the corporation can be deducted. Excess can be carried up to five years and the fair market value must be reduced by the amount of accumulate depreciation.
Allowable contributions should be reported on the individual shareholders K1 if the corporate has elected “Sub. S” status.
For Partnerships, S-Corporations and Limited Liability Companies, the following rules may apply:
- The corporation may not claim a deduction for the property donated
- The contribution passes to the individual shareholders on a pro-rated based on their percent ownership in the S corporation. The shareholder can claim this deduction on their individual tax return. The same limits and carry forward rules as discussed above will apply.
- Partnerships and limited liability company contribution rules are the same as an S corporation with one exception – The partners or member can claim a deduction even if they have no basis in the partnership or limited liability company.
IMPORTANT NOTE: The content provided is for informational purposes only. Please consult a tax professional for further information regarding tax-deductibility of real estate donations.