Landowners who donate property, with or without structures, to a charity may receive significant tax benefits, according to a May 15 announcement. The American Legion highlights that such gifts often result in a charitable deduction based on the fair market value at the time of the donation and can allow donors to avoid capital gains taxes if the property has appreciated.
These benefits may be especially relevant for individuals who have recently sold other assets or own commercial or rental real estate with increasing income and decreasing depreciation. By making a planned gift of land, donors can support their preferred charity while also addressing potential income-tax issues.
The organization provides examples such as Lisa, who purchased vacant commercial land for $100,000 ten years ago. After it appreciated to $200,000 and she faced large capital gains from another sale, her CPA explained: “You will pay the federal capital gains tax, plus a state capital gains tax because you live in a state that levies one. You should also consider that you have already sold another property and have a very large capital gain this year.” When Lisa asked about donating instead of selling her property, her CPA said: “You can transfer a property to charity the same way you would sell the property… The $200,000 deduction would offset a substantial part of your gain. We might be able to offset the entire capital gains tax payable on the other sale.” Lisa concluded: “Great! That’s almost as much as I paid for it in the first place. Plus, I could help my favorite charity with a very nice gift this year. That sounds like just the ticket for me.”
Another example is Bill, who owned commercial buildings with declining depreciation but rising rental income and taxes. His CPA advised: “Yes…your income is now much more than the depreciation and your taxes are going to be much higher.” When Bill considered donating his building during his favorite charity’s fund drive, his CPA responded: “Yes, you would receive a substantial deduction… This would save over $100,000 in income taxes. In addition…you would not pay tax on the $200,000 of gain in that rental home.” Bill replied: “This sounds like a very good plan. I have been looking for ways to reduce my taxes and help my favorite charity with that fund drive. Let’s go ahead and do this.”
For gifts valued above $5,000 an appraisal by an accredited professional is required along with IRS Form 8283 signed by all parties involved.
The American Legion’s Fund Development program allows supporters to establish their legacy while providing financial support through planned giving options.