Wondering how to donate a house?
Charitable donations can keep supporting your causes long after your lifetime. Gifts of land, homes, or easements make a lasting mark.
Of course, there are various reasons for real estate donations. Some donors are less interested in the cause than they are in offloading an investment property, or in getting out of the responsibility for an inherited home.
In any case, a gift deed can be used to donate to a non-profit organization or charity. Before committing to the decision, it’s important to know how to spot some key issues.
Sure They’re Ready? Reach Out First
Talk with the organization before making any binding commitments. You’ll want to learn if the organization is able and ready to accept and use your gift.
If so, learn what documentation you’ll need to prepare. When you meet with a rep from the charity, be prepared to show:
- An estimate of the property’s current market value.
- A record of your original acquisition of the property, including the price, date, etc.
- An estimate of the value added by any improvements you’ve made to the property.
A conservation nonprofit may have a great reason to accept real estate. And some nonprofits, like Habitat for Humanity, are quite capable of putting homes to good use. Some other charities, too, accept gifts of real estate to resell for their value. They typically have detailed sets of rules for acceptance, which hinge on a board’s approval.
But most nonprofits would likely want the real estate to be sold, and the proceeds donated to the organization. Some charities simply don’t have the resources to deal with donations of homes. Although a direct donation might be easier on you, selling the home and donating its liquidated value can be easier on a charity.
In short, it’s best not to assume. Otherwise, if you give a home away (whether during or after your lifetime), an unprepared charity might disclaim your gift.
Why would a charity turn down property? Perhaps it is not in marketable condition. Perhaps there are loans secured by the property. Perhaps there are other claims or conditions on the title that would make the transfer unacceptable to the organization. For example, some charities cannot accept a deed subject to a life estate. Others can.
After You Go: The Charitable Bequest
A bequest is a gift of a person’s property upon death.
Under federal tax law, bequests to 501(c)(3) nonprofit organizations can create tax deductions for a deceased person’s estate.
It’s important to check the state’s laws too. A state will have its own requirements for spousal obligations, preferred deed types, and the necessary documents pertaining to a title transfer.
And of course, as with a gift during your lifetime, you’ll want to heed the requirements and preferences of the specific receiving organization.
Thinking about making a bequest? Ask for the organization’s bequest form. Set time aside to write a will that includes the organization’s full legal name, and describes your wishes.
A Noble Deed: Elements of a Valid Gift
To be sure you’re creating a valid gift deed:
- You, the donor (“grantor”) must intend to make a present gift of your home and must deliver the deed to your recipient (“grantee”), who must accept the gift.
- Your gift deed must contain language that explicitly states there is no consideration (no value expected for the gift).
- The new deed needs to include a complete legal description, copied precisely from the prior deed.
- The deed must refer to the source, showing a chain of title.
- Any deed restrictions should appear on the deed.
After creating the deed, be sure to have it recorded at the office of your county recorder of deeds. Recording makes it a public record, so anyone who would make a claim to the property will have notice of the transfer.
After transferring the deed, obtain the receipt from the organization signed by its representative on official letterhead.
The Nitty Gritty: Taxation Matters
There is federal gift tax for a transfer of an asset for no (or low) consideration. But, according to The Tax Adviser®:
Gifts to charity are generally not subject to the gift tax but must be reported on Form 709 if they are made in the same year the donor makes taxable gifts that must be reported.
If you give to a 501(c)(3) organization, you do not need to pay capital gains tax on the rise in value over the time you’ve owned the home. Donating (rather than selling) a property that has risen significantly in value can therefore be very beneficial to the donor. Assuming you’ve owned the home for more than a year, as Habitat for Humanity of Broward County, Florida points out: “[N]ot only do you not have to pay the capital gains tax, but you will even receive a charitable income tax deduction, based on the market value of your property.”
The deduction applies for the tax year the gift was made. Just be sure to get a professional appraisal, to properly take your tax deduction under the IRS rules. Give a copy of the appraisal to the receiving organization.
There are different rules by state as to whether state gift tax applies. And states have peculiar rules about other aspects of the gift, too. Imagine you’re a Pennsylvania homeowner. Together with a Pennsylvania gift deed, you’ll need to attach the statement of value, and all documentation required by the home’s county. Pennsylvania charges a transfer tax — not for inheritances, but usually for donated property. Both you and your recipient are responsible for paying it. If you don’t manage this tax, the charity becomes liable for it.
For Best Results, Consult With the Right People
Because your own financial situation impacts your tax return, it’s important to have a financial adviser review significant donation plans. This website offers general information, and is not a substitute for a case-specific advice. Certain environmental issues require extra documentation, per states’ laws. And on top of all this, federal, state, and local reporting requirements can change.
As you can see, it’s a good idea to contact an accountant and a lawyer in your own state for advice in advance of your commitment to donate real estate.
Supporting References
Internal Revenue Service via IRS.gov: Charities, Non-profits, Contributors – Tax Information on Donated Property (Jun. 6, 2023).
Pennsylvania Department of Revenue: Realty Transfer Tax.
The Charitable Strategies Group at SchwabCharitable.org: Charitable Giving Insights – Appreciated Non-Cash Assets. A Tax-Smart Approach to Maximize Your Philanthropic Impact.
Sarah Sharkey for SmartAssetTM via SmartAsset.com: Donating Real Estate to Charity – Tax Benefits (updated May 27, 2023).
Justin Ransome, J.D., MBA, CPA, and Frances Schafer, J.D. for The Tax Adviser®: Back to the Basics: Common Gift Tax Return Mistakes (Jul. 1, 2010).
Melinda Sineriz for the National Association of REALTORS® via Realtor.com: How to Donate a House — And Why You Might Want to Really Do It (Jan. 28, 2019).
Deeds.com: Charitable Donations of Real Estate (Dec. 16, 2013).
And as linked.
More on topics: Gift deeds in Florida and Arizona
Photo credits: Tim Douglas, via Pexels.