Types of real estate gifts
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University Realty closed on a warehouse property that needed extensive repairs and had been on the market for more than a year for $3.5 million. After receiving only low-ball offers, the broker approached University Realty about acquiring the property. After receiving the letter of intent through the broker, the property owner consulted his tax professional and realized the benefits of a bargain sale. University Realty closed in less than 21 days for $2 million cash, with the property owner receiving the balance of the $3.25 million appraisal as a gift tax receipt to use against income for the next five years. Not only did the broker receive a commission on the sale of the property to the University Realty, the broker that brought that property also received the listing to lease the property, realizing two commissionable events.
University Realty closed on a multi-tenant office and retail property in Tempe, adjacent to the ASU campus that was a bargain sale. The owner was looking to sell the property, which had several tenants in various lease stages at the time of the transaction. The property had not actually been on the market, but the owner preferred to take advantage of selling to University Realty and making a gift to the Foundation at the same time. University Realty closed on the deal within 30 days for just under $7 million with the property owner receiving just under $6 million in cash, and the balance of $1 million as a gift tax receipt to use against income generated.
Karen and Tom own a second home in the cool pines of Flagstaff, Arizona, for which they paid $80,000. It was recently appraised at $250,000. They are planning to retire in the Midwest to be closer to their children and grandchildren and would prefer to recover their original purchase price, but are anxious to sell the property as soon as possible to spend the Christmas holidays with their family. Knowing how swiftly the ASU Foundation can transact the purchase of a home, their real estate broker suggested they sell the property to the ASU Foundation for $80,000 to recoup what they originally paid for the property. Karen and Tom claim a charitable income tax deduction for $170,000, an amount equal to the difference between the fair market value of their house property on the date of their gift and what the ASU Foundation paid for the property.
A recent donor was looking to monetize her rental condominium without the stress of the selling process. In search of a simpler method, she turned to the ASU Foundation for assistance and developed a plan to give her real estate. The ASU Foundation updated and sold the property within three months, not only bringing her relief and financial ease but enabling her to make a charitable gift that supports future generations of ASU students.
Charitable remainder unitrust
Susan, 60, is not an ASU graduate but has enjoyed the arts at ASU Gammage for decades. She wants to make a gift to the ASU Foundation to help ASU Gammage. Susan inherited a warehouse building from her parents a decade ago and the maintenance and upkeep of the warehouse has been time intensive and a cost burden. Her real estate broker had been unsuccessful in trying to sell the warehouse for years. She is now planning her retirement strategy and no longer wants to have to manage this warehouse and worry about keeping it leased. Her broker suggests she work with the ASU Foundation to transfer her warehouse into a 6% charitable remainder unitrust with annual lifetime payments to her. The value of the property is $250,000. Subsequent to the sale of the warehouse, Susan begins to receive payments based on the net proceeds of the sale. She is eligible for a federal income tax charitable deduction of $81,305 in the year she creates and funds the trust. This deduction saves Susan $22,765 in her 28 percent tax bracket. Now, without the responsibilities of real estate ownership, each time Susan attends an event at ASU Gammage, she takes pride in knowing she had a part in Gammage’s continued legacy.
Retained life estate
Joe, 72, bought his house for $100,000 a few decades ago and has since paid off the mortgage. The house is now worth $600,000. Joe decides to transfer his home ownership to the ASU Foundation, while retaining the right to live there, rent free, for the rest of his lifetime. Joe is entitled to an income tax deduction for a portion of the value of the home in the year he transfers title to the ASU Foundation.
Will or living trust
In addition to running a successful architectural practice, Mitchell, an ASU design school and architectural studies alumnus, owns and manages a commercial office property in downtown Phoenix. Mitchell has three grown children that he does not want to burden with the long-term management of this property. He has other assets that he plans to leave to his children. Instead, he has bequeathed the office building property to the ASU Foundation through his living trust. At the time of his death, the property will be transferred to the ASU Foundation. The net proceeds from the sale of the property or the net income from leasing the property will be used to fund an endowment at the Herberger Institute for Design and the Arts, as Mitchell directed.
Frequently asked questions
Will I still get a commission on the transaction?
If the property is part of a bargain sale, the sale involves a cash purchase, which would produce a commission under you seller listing agreement. The larger benefit comes in you helping us reposition the property to be leased and resold, both additional commissionable events. We often use the procuring broker to either sell or lease the property when it is ready for sale/lease. There is also the good feeling that comes with helping add value that will go to help ASU provide education and enrichment opportunities to students.
What if there is debt on the property?
The debt portion could be considered part of the cash component of a bargain sale, with a gift tax receipt for the difference between the cash value and the appraisal. Note that any capital gains will be allocated proportionately to the sale.
What if there is deferred maintenance on the property?
The benefit of working with University Realty on these projects is that we welcome value-add opportunities, and have the expertise and capability to reposition and bring the property up to market conditions. If capable, the broker involved in the original transaction will have the opportunity to market the updated property when complete.
How fast can you close the transaction?
As quickly as we can complete our required due diligence, which usually includes an updated survey and Phase I environmental report. The qualified appraisal is ordered by the seller/donor and must be from a qualified appraiser as defined by the IRS. Appraisals obtained prior to sale are only good for 60 days prior to the transaction closing.
What type of property will you accept?
We evaluate all types of commercial and residential property, in wide ranging conditions. We do perform extensive due diligence to verify feasibility, and any potential liabilities, prior to acceptance.
Does the property need to be near Arizona State University, or in metro Phoenix?
No, we’ve accepted property across the country, and looked at international opportunities as well.
What if my seller is an LLC or has partners?
The LLC isn’t an obstacle. Depending on circumstances, the LLC may sell the property under a bargain sale. Taxation of the LLC will determine cash and tax benefits that will be allocated in accordance with ownership interests as well as who benefits from the receipted gift. If there is a partnership, the partners will receive a pro-rata share of cash, and separate gift tax receipt for their pro-rata share, when donated.
What’s the benefit of a donation or bargain sale?
There are many benefits: potential reduction of capital gains, a deductible tax receipt to use for up to five years plus the year the gift was given, fulfilling a pledge of funds, relief from the burden of upkeep and property taxes.
What properties won’t you take?
Time shares, property without deeded access, property without any access to water or water rights, manufactured homes.