The Power of Real Estate Donations in an Increasingly Cashless Society November 15, 2017 Craig R. Stevens, Partner Aronson LLC Chase Magnuson, Realty Gift Fund CFO www.aronsonllc.com/blogs/nonprofit

What We Will Cover Enormous Wealth exists in primarily non-cash assets yet charities generally ask for cash How might an Organization unlock potential donations in non-cash assets particularly real estate Organizations are often reluctant to get involved with real estate and non-cash assets

Donations of Property Donations of property held longer than one year generally provide deductions at the fair market value of the property given Provides a double benefit – fair value deduction plus not recognizing capital gains taxes A few caveats : Adjusted gross income limitations for gifts of property Any Sec. 1250 recapture may reduce donation but not that common anymore Deduction for gifts of personal property limited to cost basis if not a related use Gifts to private foundations have less tax benefit Bargain sales still yield a tax deduction for FMV minus amount received with basis allocated between sale and gift portion of agreement

Issues Related to Debt Deduction value of property reduced by outstanding balance of any mortgage or other liability that encumbers the property Results the same whether the charity assumes the property or receives title subject to the debt “ Acquisition indebtedness” on a property received by charity potentially subjects them to unrelated business income UBIT particularly bad for a charitable remainder trust

Reporting Requirements Qualified appraisal for a non-cash gift exceeding $5000 – Form 8283 Donation over $500,000 requires appraisal attached to the return Lack of compliance can lead to deduction denials and penalties

Positioning Yourself to Receive Donations of Real Estate Acceptance policies Relationships with qualified real estate consultant or facilitating charity Approvals from Board, CEO and General Counsel for the program and level of support Establish cash revolving pool for time sensitive items

Straight Donations Free and clear of debt 100 % Ownership by donor Fractional interests Donor seeking to fund several charities with same property

Bargain Sales (UBIT Issues) Part cash, part gift (use of cash to pay off debt or for Donor) Charity can’t provide funds to close – seek a simultaneous closing (Winston Guest case) Buy out other donors who have no interest in a donation arrangement Case study on 30 % vacant shopping center Form 8283 issues to be discussed with buyers

Evaluation of Donation Opportunities Arrange for a title search Seek Broker’s Opinion of Value Ask for salability issues Property inspection reports (radon, environmental, home inspection, roof, ADA ) Physical inspection of property and neighborhood

Evaluation of Donation Opportunities (continued) Consider using a  Single member LLC to take title I.R.S. Notice 2012-52 (July 31, 2012)

Possible Solutions for Donations with a Prearranged sale Property must be held for investment Held for more than one year Prospective buyer willing to accommodate donor with IRS Section 1031 exchange (Starker type) Locate replacement property within the rules Useful to fund CGAs, CRTs, or Donor Advised Funds    

Questions ?