August - Back-to-School time, fall sports kick-off, and yet still warm enough to swim.

It's funny how we get accustomed to one form of busy only to leave that one behind and enter a new form of busy.

It's the same for the nonprofits and social services who serve Grundy County - we also make seasonal shifts, and we rely on you professional advisors to help your clients help us to continue serving Grundy County's residents - usually those most in need.

Back-to-School time is a good time to use our charitable dollars to assure that our low income families have what they need so that their children are successful in school.

If you haven't yet, please check in with your clients about their mid- and year-end giving.  If they haven't used their RMD, are they will to convert it to a QCD to help others?  Today we're talking about gifts of real estate - any clients wanting to learn how to do this to support their favorite charity or cause?

Remember, you don't give TO the community foundation, you give THROUGH - and we can teach you and your clients how! 

Julianne Buck, CAP®

Executive Director

Gifts of real estate: Watch every step

We’re hearing from more and more attorneys, accountants, and financial advisors that your clients are expressing interest in giving real estate, including farmland, to charity. This is wonderful news!

You’re certainly aware that gifts of real estate to a fund at CFGC, just like gifts of other long-term capital assets, can be extremely tax-efficient. That’s because your client is typically eligible for a charitable deduction based on the fair market value of the property. Because the community foundation is a public charity, when we sell the donated property, the proceeds will flow into the donor-designed fund free from capital gains tax.

When a donor uses farmland as the fund asset, we do keep the farm and it is the net income that is used for grantmaking. This program is called “Keep Grundy Growing,” and details can be found at https://cfgrundycounty.com/kee...

To achieve the best tax outcome and overall charitable result, though, it’s critical to undertake a careful process along the general lines of the following (depending of course on the specific situation):

• First, you’ll need to determine that the real estate is a long-term capital asset (held for more than one year). That may sound obvious, but we’ve talked with advisors and their clients in the past about a potential gift of real estate and it turned out that the property was only recently purchased. The fair market value deduction (versus cost basis deduction) is available only for a long-term capital asset.
• Next, you’ll want to work with us to structure a donor-advised or other type of fund to receive the asset, if your client does not already have a fund in place. The deductibility rules are different for real estate gifts to a public charity (such as a community foundation fund) versus a private foundation. Again, clients may not be aware of the pitfalls here. Sometimes we meet with advisors whose clients are very close to transferring real estate to a private foundation, which could be devastating in terms of missed tax savings.
• You’ll need to verify that the property is not subject to a mortgage or other debt. Transferring encumbered property triggers important considerations with potentially significant tax consequences. The lender might not even allow a transfer in the first place. If you’re dealing with commercial property, you’ll also need to check to be sure that the property is not subject to “recapture” if your client has previously taken depreciation deductions.
• You will need to determine whether the property produces income and discuss this with the community foundation. Income-producing real estate can potentially trigger “UBIT” (unrelated business income tax) for the community foundation. Although there are exceptions and strategies to minimize UBIT’s impact, it’s important that this issue be dealt with up front.
• You may need to work with us to determine whether an environmental audit is required for the property.
• Verify that the client has not entered into any discussions about an imminent sale of the property. Even if we will sell the property shortly after receipt (so that the proceeds can flow into the donor-advised or other fund to support the client’s favorite causes), your client cannot have pre-arranged this sale. Doing so could trigger the IRS’s step transaction doctrine and wipe out the tax deduction.
• Importantly, ensure that the client obtains a qualified appraisal to determine the fair market value of the property. This is critical to obtain a tax deduction, and the appraised value must be reported to the IRS on a Form 8283 in strict compliance with the IRS’s rules.
• Finally, transfer the property with the appropriate legal documents, including a deed.

All of these questions are included in our “Checklist for Gifts of Real Estate,” which can be downloaded at https://cfgrundycounty.com/phi...

Whew! That’s a lot! The bottom line here is that gifts of real estate, especially farms, can be a wonderful tool for both your client and the charities they want to support through their fund at the community foundation. Our team can help you through the process every step of the way. We have professionals in house, as well as on-call experts with whom we work regularly, to ensure that your client’s real estate gift is handled without a hitch, opening the door to bring their charitable goals to life.