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Rules for donating real estatle for tax deductions
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donations, real estate donations, unwanted property, investment real estate, real estate, property donation
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Copyright 2006 National Real Estate Network LLC
Most people think that donating real estate to a charity is for the rich. This simply is not true. I have worked with individuals, charities, and small corporations for years with the donations process. For many people and companies is about the able to rid themselves of unwanted property. They simply want out. They are tired of property taxes, insurance costs and the liability exposure.
The following are the rules that apply for real estate donation:
Individuals:
The following rules apply if the donated property is owned in your own name, with your spouse or other persons: If you have held the property for more than one year, it is classified as long-term capital gain property. You can deduct the full fair market value of the donated property. Your charitable contribution deduction is limited to thirty percent (30.00%) of your adjusted gross income.
Excess contribution value may be carried forward for up to five years. If the property has been depreciated, the fair market value must be reduced by its accumulated depreciation through the date of contribution. Fair market value is most commonly determined by an independent appraisal.
If you elect to deduct your cost basis of the donated property you are allowed a deduction of fifty percent (50.00%) of your adjusted gross income. Excesses here again can be carried forward up to five years. Which method you elect is dependent on the cost basis in the property donated, your tax bracket, the age and health of the donor and whether you plan to make future contributions. Corporate Donors
The following rules apply if a corporation makes your contribution, these rules apply:
If you have a controlling interest in the corporation and the property has been held for more than one year, the corporation can deduct up to ten percent (10.00%) of the net profit of the corporation. Excess contribution amounts can be carried forward up to five years. The fair market value here must be reduced by the amount of accumulate depreciation. If the corporate has elected “Subchapter S” status, then the contribution allowed will be reported on the individual shareholders K1 and may be deducted on the individual return. Partnerships, S-Corporations and Limited Liability Companies
The following rules apply if a partnership, S-Corporation or limited liability company is making your contribution:
The corporation may not claim a deduction for the property donated. Rather, 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 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.
Real estate investing by nature is risky. You can win, lose, or break even. We cannot guarantee a profit or loss. We do not provide legal, accounting, or contracting advice.
* Please consult your CPA/Attorney for your specific tax benefit.