What tax deduction do I receive when donating?
Generally speaking, you may deduct the difference between the cash received (if any) and the fair market value based on an appraisal specifically completed to assess the value based on IRS gift appraisal guidelines. On a straight donation, the deduction is that appraised value. Capital gain tax may also be avoided (excluding the mortgaged portion or cash received, and accelerated depreciation may be recaptured). Unlike car donations, the real estate donation is based on appraised value not the charity auction liquidation price. The deduction can be carried forward up to five years following the year of sale. You may not deduct proceeds that were applied to pay of mortgages or back real estate taxes. If you claim a deduction over $5,000 you must obtain an third party appraisal no earlier than two months prior to closing. We will provide a credit at closing to pay for the cost of the appraisal who must be hired by the donor.
Can I choose my favorite charity?
The proceeds can go to the charity of your choice provided they accept the cash donation. Charity Auction Network uses a master (or central charity) to take title of real estate and execute the numerous documents required to buy and sell real estate. Almost no charities in the USA can take title to real estate, let alone process sale documents without very lengthy approval periods, so the master charity approach is the only way to facilitate such closings. At least 90% of the net sales proceeds go to the charity of your choice and may be split between one or more nonprofits.
How long does it take to complete a donation?
Although charity car auctions often take place once a week, real estate auctions take much longer. Our goal is to maximize the value of the property, so the charity donation is also optimized. We must (in most situations) identify a market buyer for the asset donated after the donation agreement is signed but before a closing. As such, we conduct a marketing process about 14 days for lower value residential or land, and up to 90 days for complicated transactions with commercial property. Start to finish we can finalize donations anywhere from 3 weeks to three months depending on the value/complexity of property.
Do I have to pay commissions or closing costs?
There are no closing costs to a donor and all unpaid liens/mortgages will be paid off at closing by the Charity. If there is sufficient equity, a listing broker can be paid a commission based on the tax assessor appraised value since there may be no cash going to the donor. You will not be asked to pay anything out of pocket (unless approved and to the donor/seller’s benefit). On high value assets solicited by Zetabid, if there are seller closing costs they will be spelled out in the proposal or contract.
Can either party cancel the donation agreement?
In short, it depends on the transaction. If the charity can’t achieve a sales price that results in a profit, it may terminate the donation agreement. Same goes for title problems or repair issues found. If we are completing a larger IRS Section 170 bargain sale, the seller may have termination rights if the gift appraisal comes in below the estimated value (reducing the deduction below the negotiated threshold).
What if my property has environmental issues?
Our principals have assisted with transactions such as the AEP Muskingum River Power Plant in Ohio and Lockheed Martin sites in Burbank CA with significant environmental issues. However, only high value assets would be considered due to the risk and complexity. We have investors specialized in environmental cleanup and often issue indemnities to sellers via complex insurance placements.
What does a simple donation process look like?
How can a nonprofit monetize real estate donations without having the risk of ownership?
All the charity has to do is market real estate donations as an donor option (website form, newsletters, emails, etc.) and Zetabid and our nonprofit division CharityAuctionNetwork.org will handle the lead outreach, property screening, marketing and sale without the charity ever having to own or manage the property. Much like the car donation programs, Charity Auction Network takes title to the asset via its partner 501(c)3 entity and distributes a minimum of 80% of the net proceeds to the referring nonprofit. It’s parent company Zetabid operate a national real estate auction platform and can quickly monetize all donations of real estate. The auctions actually occur prior to the master nonprofit taking title (while under contract of sale) so there is no hold time and cash available to pay closing costs and mortgage balances. With high value property, a more traditional broker listing may be utilized.
Nonprofits may market this donation channel as aggressively (or passively) as they deem prudent. With no costs or long term obligations/contracts, opening up this donation channel is a smart idea for nonprofits looking to expand their donation capabilities in these tough times.
Can you accept real estate with a mortgage balance?
Yes, the proceeds of the auction sale will pay off the mortgage balance first, with the remainder going to the charity (after normal closing costs such as escrow, title fees, transfer tax, real estate commissions, etc.). Prior to the auction we will determine if the likely value exceeds the mortgage balance and reject any asset that does not have sufficient equity to result in cash proceeds to the charity. This unique capability allows us to open the doors to more property donations.
Can a donor give a portion of their equity to charity, or do they have to donate it all?
If a donor has a higher value asset, they may elect to donate a portion of the equity (falling under a Bargain Sale-IRS Section 170) which will incent more donations from those who wish to make a significant donation, but not their entire equity position. Many potential donors avoid real estate donations because they believe it is ‘all or nothing’ proposition, but donors can receive significant cash at closing too. This is also helpful to buy out partners who may not want to donate.
What type of real estate can be donated?
Any type of real property may be donated that has positive equity, clear title, and no environmental issues. We have processed assets with major environmental issues, but there must be equity.
What are the costs for the charity to participate?
There are no costs or obligations to participate. The charity agrees to promote the donation option (at any effort level it chooses) in its fundraising communications and allow CharityAuctionNetwork.org and Zetabid to display the charity logo and mention its participation in the program. We will respond, vet and report on the status of all donation inquiries. The charity does not take title to the asset (we use a central 3rd party 501c3 corporation to take title and execute donation contracts) but 80%+ of the net proceeds shown on the closing statement go to the referring nonprofit (your organization). The central charity retains 10-20% to cover its costs and liability stepping into the chain of title. Zetabid earns a nominal auction fee at closing paid by the buyer (not the charity) and real estate commissions may be paid to 3rd party brokers to assist with marketing and closing. Closing costs such as escrow, title, donor back taxes or other unpaid liens may be paid from sales proceeds and vary wildly by property.
How is Charity Auction Network different?
Third party car donation services are fairly ubiquitous and allow charities to collect cash with little effort other than the marketing of the donation option. Real estate has no such 3rd party platforms due to the complexity of sale and lack of liquidity. With a national real estate auction platform, and a national title company partner, Charity Auction Network and Zetabid can quickly vet assets and convert them to cash without the charity ever having to own or operate the asset. Also, using the IRS Bargain Sale, it can accept real estate with mortgage debt and high value assets with a portion of the equity going to the charity (and a portion in cash to donor upon sale) which induces more willing donors than an all or nothing donation approach.
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