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A Guide to Giving

How can CCIMs assist the charitable community?

By Chase V. Magnuson |

Last year donors gave charities more than $300 billion in total gifts. Less than 3 percent came in the form of real estate equities — despite the fact that more than 40 percent of the nation’s wealth is in real estate. That disconnect represents a great untapped source of potential income for CCIMs. The charitable world consists of approximately 1.3 million organizations. The vast majority of these institutions constantly seek funding sources. Until recently only a very small percentage of charities accepted donations of real estate. But now charities are positioning themselves to take advantage of the opportunity to raise more money by accepting property donations. The CCIM network is perfectly placed to provide crucial services to the charitable community. On the national level, the Education Foundation of the CCIM Institute raises funds for its mission by accepting donations of real estate. In addition, it provides tools to educate CCIM members about charitable donations of real estate to help them become leaders in support of the philanthropic world. In their local markets, CCIMs can work with individual and corporate clients to facilitate donations of real estate to charities. The benefits for clients include tax savings on capital gains, income, and inheritance, as well as estate planning and increased income streams. For CCIMs, this opportunity can provide commissions, consulting fees, a new client base, public relations exposure, and national referral opportunities. Given the growing older population concerned about retirement income, estate planning, and inheritance issues, this may be the perfect time to develop this business opportunity.

Donating Real Estate

There are various types of real estate donation arrangements, each having a specific structure to meet the Internal Revenue Service requirements to qualify for a charitable deduction for the donor. The following are the most common types of gift structures:
  • Outright gift of debt-free property.
  • Bargain sale in which either the donor receives cash or mortgage relief. For example, a donor couple owns a property with fair market value of $500,000 with a $200,000 mortgage. They donate it to a charity and receive an indicated charitable deduction of the difference between the FMV and the mortgage ($300,000).
  • Charitable remainder trust, established by placing the property in a trust, then selling it to establish an asset on which a fixed percentage is paid to the donor for life.
  • Charitable gift annuity, which is an exchange of the donor’s equity in return for a life income that is guaranteed by the charities’ full faith and credit.
  • Retained life estate, which allows a donor to transfer title of his or her primary residence to a charity but remain living in it for the rest of his life. Generally, donors receive the highest charitable deduction benefit from highly appreciated long-term capital gain property. They can use the deduction against 30 percent of adjusted gross income in the year of the donation with a five-year carry-forward on the unused portion.

Donor Challenges

Like all real estate transactions, donations arrangements are subject to several challenges. A failure to follow the IRS regulations can nullify the charitable deduction. Commercial real estate professionals assisting in real estate donations should counsel their clients to seek legal and accounting advice to avoid common pitfalls, including the following. Unqualified appraisal . Typically this results from an outdated appraisal or an appraiser who lacks the IRS-required expertise. For residential appraisals, the IRS prefers appraisers holding the SRA designation. MAI designees are preferred for commercial appraisals, although other appraisal professionals often are acceptable. Both designations are earned through the Appraisal Institute, and appraisers holding those designations can be found at www.appraisal institute.org. Prearranged sales . In such cases, a donor has entered into a firm contract to sell a property and then tries to give it to a charity. Depreciation recapture implications. Tax guidance for donors is essential as some actions may not be taken into consideration. Under any gifting arrangement, accelerated depreciation over straight-line is taxable at ordinary income rates. Completing gift documentation incorrectly . For example, if the donor has the right to control the proceeds from the sale of the property it could void the right to the charitable deduction. Stepped transactions . In such cases, a donor offers to donate a piece of property to a charity subject to the requirement that the charity sells the property to the donor’s designee.

Professional Opportunities

Donations of real estate can provide a major source of funding for nonprofit charitable organizations. The equities can be split between several charities and properties can be located anywhere in the country. Charities accustomed to processing real estate donations have a team of professionals to assist in facilitating their programs. Team members include tax attorneys, title companies, real estate consultants, appraisers, and the charities’ planned giving officers. For CCIMs, this team arrangement could provide a new source of commission and consulting income. For example, in cases where donors might need to find a “facilitating” charity to accept their donation, the Education Foundation could fulfill that role. In return for handling the process, the foundation would share in the donation. Many charitable institutions are beginning to look at real estate donations more positively. For example, George Washington University is developing a real estate division and aggressively seeking gifts of real estate. It also serves as a facilitating charity helping other foundations with their real estate donations and sharing in the proceeds. CCIM members can learn more through seminars on the subject presented by the Education Foundation. (See “For More Info.”) They could then provide professional services to the charitable world to allow the acceptance of more donations of real estate. This would produce new income sources for brokers and promote good public relations in their communities. Chase V. Magnuson is director of planned giving, real estate, for George Washington University in Washington, D.C., and president of Real Estate for Charities. Contact him at chase magnuson@msn.com.

Chase V. Magnuson

The Work of The Education Foundation The Education Foundation of the CCIM Institute has been granting scholarships to deserving students and real estate professionals since 1988. The scholarship programs are designed to encourage and assist professionals pursuing the CCIM designation and to promote high educational standards. The foundation offers the following scholarships: Push for the Pin. A full-tuition voucher for either CI 103 or CI 104. Awards are made through CCIM chapters. Chapter 101 Scholarships. Awarded through CCIM chapters, this schol-arship applies to tuition for CI 101. University Scholarships. For juniors, seniors, or graduates studying in a university real estate program, a $1,000 cash award and a voucher is given toward tuition for either the CI 101 or CI 103 course. Susan J. Groeneveld CCIM Scholarship. Awarded to two CCIMs accepted into the Jay W. Levine Leadership Development Academy, this scholarship includes $2,000 toward tuition and a $500 travel stipend. Fully Funded Named Endowed. Awarded through CCIM chapters and other scholarship sponsors, most awards are $1,000. Research The Education Foundation also provides valuable research assistance to CCIM members. Through an Education Foundation grant, the CCIM Institute has partnered with the American Real Estate Society to provide CCIM members with access to ARES’ timely and relevant real estate research. Completely accessible online, this exciting benefit will be available to CCIM members this summer. For more information visit www.ccimef.org. Charitable Giving Options Individuals who want to provide for their favorite charities have several options. This brief account highlights the major charitable giving options. Donors should always engage legal, tax, and financial planning advisers for assistance. Wills A bequest in a will allows you to keep all of your assets available during your lifetime in the event your circumstances and needs change. Your beneficiaries can be changed during your lifetime so this revocable gift provides flexibility. A bequest to a charitable organization would allow certain asset values to be removed from the estate for estate tax purposes. Consider the following types of bequests. Specific bequests are the most common. You leave a specific amount of money, asset, or percentage of your estate to a charitable organization. If a specific asset is named and it’s disposed of before death, the bequest fails. If a specific amount of money or percentage of the estate is named, it will not fail even if there is not enough cash to fulfill the bequest. Residual bequests are for the remainder of an estate and would be made to charities only after all debts, expenses, taxes, and other bequests have been paid out of the estate. Contingent bequests allow you to name the charity as a contingent beneficiary. A contingent bequest takes effect only when all other bequests fail (for example, “If my only child should predecease me, then I leave my entire estate to the Education Foundation of the CCIM Institute.”). A will also can be used in combination with charitable trusts, life insurance trusts, or other estate planning vehicles. Life Insurance Life insurance often is overlooked as a gifting option but it can be a simple and effective way to provide funds for future work. Two forms of life insurance are typically donated: a paid up whole-life policy or a universal life policy. There is a charitable income tax deduction for insurance policies. Donor-Advised Funds With donor-advised funds such as Fidelity Charitable Gift Fund, Vanguard Charitable Endowment Program, and Schwab Fund for Charitable Giving, you can give cash or marketable securities when it is advantageous for you from a tax standpoint and then decide later which charities you want to support. Thus, you get an immediate tax deduction for the entire contribution regardless of the timing of the distribution to your designated charity/charities. Since the Education Foundation is an IRS-approved charitable foundation, it can be designated as a recipient of donor-advised funds. Charitable Trusts Individuals often fund charitable trusts with stocks or property with a low cost basis but high appreciated value because it eliminates capital gains taxes. In addition, donors can use their property or receive income from it during their lifetime. There are many different types of trusts that you can use depending on your estate and tax situation. For an in-depth look at charitable giving, visit the Education Foundation Web site at www.ccimef.org and read my full presentation, “Charitable Giving: What Are My Options?” Mary Stark-Hood, JD, CFP, is president of the Hood Group and a consultant for the Education Foundation of the CCIM Institute. Contact her at maryshood@comcast.net. Properties for Donations Primary homes Investment properties — offices, medical, retail, apartments Farms and ranches Resort condo rentals Vacant land Industrial warehouses

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