Charitable Donation
My husband and are in the process of selling our mixed-use property and will not be doing a 1031 exchange for several personal reasons. We currently have a local church who has made its second counter offer which is still $30,000 lower than our last asking price. Rather than make a new lower counter offer, could we tell them, that is our lowest price but at closing we will give them a $10,000 charitable donation check. Would this help us next year when we would face a very large capital gains tax?
You could sell the property at their asking price and gift the difference between the asking price and the fair market value (FMV).
A charitable contribution is the difference between fair market value and sale price of real estate. The cost basis of property must be allocated between portion of property "sold" and portion of property "given" to charity, based on fair market value of each. The appreciation allocable to sale is subject to capital gains tax; appreciation allocable to gift is not. FMV is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts.
The valuation should be substantiated by an expert appraisal. Strict appraisal, appraisal summary and information reporting requirements are imposed when property gifts are claimed as income tax charitable deductions. The rules apply to property contributions claimed at over $5,000 per item or group of similar items, whether or not donated to the same charity. If the property is worth 30,000 more than their asking price you could deduct this amount as a charitable contribution increasing your itemized deductions and thereby reducing your income taxes.
You really need proper "paid for" advise fro this one - I think your idea to give the church a check at closing is a good way to compromise.
But I wouldn;t do anything like that until my accountant gave me a green light.
steve
Interesting.
I didn't say the difference between the appraised value and the purchase price is a charitable contribution.
What I was said is, if you had a property worth say 100k and had buyers interested in paying the 100k you have established FMV. If you than sell that property to a church for 70K you have part sale and part charitable contribution.
However If the church is the only buyer and it is only willing to pay 70k than you have obviously not established 100K as the FMV.
Also this area is ripe for an audit so you better have good support for the FMV of your property to suport the charitable deduction.
Our original asking price was $825,000. The church's first offer was $755,000 then we went down to $815,000. They came back with $785,000. It was at this point when our agent suggested that we should give them our bottom fiqure and thought they were still willing to come up in their price. we offered to sell the property for $815,000 but would give them a check for $15,000 as a charitable donation. Our accountant said we are entitled to give to a church whenever or whatever we choose to. But if the church accepts this suggestion where do we stand? Will the I.R.S. look at the check date and compare it to the closing date? l