Whether you just don't need the land any more, have unrealized gains you don't want to pay taxes on, or just want to do a good deed, giving land to charity can help you out on your tax return. As long as the charity is a qualified organization, like a religious institution, educational organization or public charity like the American Red Cross, you can write off up to the fair market value of the land. Plus, your deduction includes any increase in value since you bought the property -- even though you've never paid taxes on the unrealized gains -- as long as you've owned the property for at least one year. If you can't use up all of the deduction in one year, don't panic. The Internal Revenue Service lets you carry forward the excess into up to five future tax years.
Hire a qualified appraiser to determine the value of the real estate you're donating to charity. Any time you donate property worth more than $5,000, you need a qualified appraisal to document the value of the property.
Transfer ownership of the property to the charitable organization of your choice. Unless you're a real estate agent or lawyer, you're going to need professional assistance for writing up the contract and transferring the land. Make sure you receive a receipt documenting your donation to the charity.
Calculate your maximum charitable donation deduction for the year. If you donated real estate that's gone up in value since you bought it, you're limited to no more than 30 percent of your adjusted gross income. If the value hasn't appreciated, you can deduct up to 50 percent of your adjusted gross income. In no case can your total charitable contributions deductions exceed 50 percent of your AGI for the year. For example, say you bought the land five years ago for $45,000 and it's now worth $60,000. If your AGI is $100,000, you can deduct $30,000 this year and carry over the excess to the following year.
Report the amount of the deduction as a noncash charitable contribution on line 17 of Schedule A. This amount is combined with your other itemized deductions to reduce your taxable income for the year.
Complete Section B of Form 8283 to document your land donation for tax purposes. This form is included when you submit your tax return to the IRS. If the land is worth less than $500,000, an appraiser's signature on the Form 8283 is sufficient. But, if it's worth over half a million, the full appraisal must be submitted.
- Beware prearranged sales. These occur when a third party is already in place to buy the land from the charity after the donation and result in the IRS treating you as if you sold the property directly to the buyer and then donated the proceeds, which puts you on the hook for capital gains taxes on the sale. For example, if you were about to sell the land to someone else, then decided to donate instead, and the charity later sells the land to that person, the IRS could challenge your tax treatment.
- If you can't afford to give the entire property to charity, you can do a part-gift, part-sale where you sell the property to the charity at a reduced price. If you do so, make sure you put it in writing. If you can't document your intent -- and the charity's acceptance -- to treat the sale as a part gift, the IRS could deny the deduction, claiming you just made a bad deal.
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