Donate home to church; get tax deduction

Dear Real Estate Adviser,
I own a house outright that’s worth a little less than $50,000. I’ve had it since 1977 and rented it out in recent years but have grown tired of the upkeep. I want to donate it to my church. How do I go about that? What amount can I write off as a tax deduction?
— R. Williams

Dear R.,
I applaud your altruistic intent! It can be a win-win scenario to donate your home, enabling you to quickly divest yourself of the hassles of selling a depreciating asset (and the related fees), not to mention losing the property-tax obligation and those pesky upkeep chores, while giving a worthy nonprofit substantial resources to further its cause. Plus a tax deduction. So far so good.

This type of donation, however, is not always the optimal scenario from a tax-savings perspective. Realize that such a tax deduction comes off your taxable income, not your overall tax bill. For example, if you’re in the 33 percent tax bracket, you’d get around $16,000 credit at most for your just-under-$50,000 donation and probably less, depending on your other deductions and their impact on your total adjusted gross income. Moreover, if your income subjects you to the alternative minimum tax, your gift might be further minimized. You can, however, carry forward a portion of your gift up to five tax years in many instances. For these and other reasons, a consultation with a financial planner, tax accountant, attorney or similarly qualified pro is strongly suggested.

You will also need to get an independent appraisal of your home to establish value when you donate it. Appraisals by receiving charities are not valid in establishing fair-market value in the gifts of homes, according to the Internal Revenue Service. Your church, however, may be able to recommend an independent appraiser.

Though you own your home outright, it’s worth mentioning to other potential donors out there who still have mortgages that they would be donating only the equity they have. In fact, some charities won’t take encumbered donations (for example, houses with mortgages) because they can require a quick resale to settle the debt.

Since there is no debt on your home, you’ll need only to sign over a warranty deed to fully convey it to the church. A quitclaim deed would be used if you still owed money on the house.

There is one other important consideration. In the case of home or other building donations, charities typically refurbish and resell them. But if you have an emotional attachment to the house, know that there’s no guarantee the old place will remain intact after you donate it. Many smaller, older donated homes such as yours are demolished to make way for redevelopment.

All those considerations aside, your largesse will no doubt be much appreciated by your church. You will always have what you give.

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