Quick overview

Donating real estate means legally transferring title of a parcel of land, a house, or commercial property to a qualified 501(c)(3) charity or other eligible organization. If you meet IRS rules, you may claim a charitable income tax deduction for the property’s fair market value (FMV). However, real estate gifts are among the most complex charitable donations: they require a qualified appraisal, careful documentation, coordination with the receiving charity, and attention to limits and special rules that can reduce or disallow a deduction (IRS Publication 526; IRS Publication 561).

In my 15 years advising clients, the donations that go smoothly are the ones planned months in advance, with appraisals and tax counsel in place. Poor planning is the top cause of audits or reduced deductions.

Why donate real estate? Benefits and common goals

  • Maximize charitable impact by giving an appreciating asset instead of cash.
  • Potentially avoid capital gains tax on appreciation you would have paid if you sold the property (if you donate appreciated property to a public charity, you typically deduct FMV and skip recognizing the gain) (IRS Pub. 526).
  • Reduce estate tax exposure if the property would otherwise be in your taxable estate.
  • Support a nonprofit that can use the property directly or sell it to fund programs.

Step-by-step checklist before you sign the deed

  1. Confirm the charity accepts real estate. Many organizations have policies and may decline certain property types (vacant land, contaminated sites, etc.).
  2. Obtain a preliminary title check and payoff information (mortgages, liens, easements).
  3. Order a qualified appraisal if FMV likely exceeds $5,000 (see “Valuation” below and IRS Publication 561).
  4. Talk to your CPA or tax attorney about AGI limits and how the gift will be reported.
  5. Have the receiving charity sign their portion of IRS Form 8283 when required.
  6. Close the gift with a deed prepared by a real estate attorney — use a warranty deed or quitclaim as appropriate to state law.
  7. Keep all documentation (appraisal, deed, title, communications, photos) in case of IRS inquiry.

Valuation: how the IRS expects you to value donated real estate

  • Fair Market Value (FMV) is the price a willing buyer and willing seller would agree to in an arm’s-length transaction.
  • For noncash gifts over $5,000, the IRS generally requires a qualified appraisal and completion of Section B of Form 8283 for the deduction to be allowed (Form 8283 instructions; IRS Pub. 561).
  • “Qualified appraisal” means a written report by a qualified appraiser who follows USPAP standards and includes a description of the property, the method used, and the appraiser’s signed statement.
  • Exceptions: publicly traded securities and certain inventory-type donations are handled differently; but real estate almost always needs an appraisal when its value exceeds $5,000.

Practical tip: order the appraisal before you sign the deed. Some appraisers will require access and comparable sales data; the receiving charity may also want to review the appraisal.

Tax treatment: deductions, limits, and basis issues

  • Deduction amount: If you donate appreciated real property you’ve owned more than one year to a qualified public charity and the use is related to the charity’s exempt purpose, you generally may deduct the FMV up to a percentage of your adjusted gross income (AGI). The usual limit for appreciated real property to public charities is 30% of AGI (IRS Pub. 526). Deductions above the limit can typically be carried forward up to five years.
  • If the charity cannot or will not use the property in a way related to its exempt purpose (for example, it will sell the property), special rules may limit the deduction to your adjusted basis (what you paid), not FMV.
  • Capital gains avoidance: donating appreciated property can often avoid the capital gains tax you’d owe if you sold the property first. That’s a main reason donors prefer gifting over selling, but confirm the charity’s intention (use vs. sale).
  • Mortgages and debt: If the property is subject to a mortgage, the gift is treated as a gift of property subject to a liability. The amount of your charitable deduction may be reduced by the debt amount if relief of debt is considered a transfer of value to you or the charity. Consult counsel — sometimes the mortgage must be paid off or the charity must assume it under specific rules.

Documentation and IRS forms

  • Form 8283: Required for noncash donations over $500. For gifts of real estate typically valued over $5,000, you must attach the qualified appraisal summary and have the charity sign Section B (Form 8283 instructions; see IRS Form 8283 page).
  • Keep a contemporaneous written acknowledgment from the charity for any single donation over $250 describing the gift and stating whether you received any goods or services in return (IRS recordkeeping rules; Pub. 526).
  • Retain title work, closing statements, appraisals, and photos.

Logistics: dealing with title, closing, and the receiving charity

  • Title and deed: Transfer by deed at a closing handled by a real estate attorney or title company. Ensure the deed is recorded in the correct jurisdiction to effect legal transfer.
  • Insurance and liability: After transfer, the charity should have insurance in place. Some charities request an environmental assessment (Phase I) before accepting property to avoid future liability.
  • Timing: Plan for several months between your decision and the actual transfer. Appraisals, title, and charity approvals take time.

Common tax and legal pitfalls (what causes problems)

  • No qualified appraisal attached when required: omission can disallow the FMV deduction and invite penalties.
  • Overvaluing the property: aggressive FMV claims trigger IRS review and potential penalties. Use conservative, well-documented appraisals (IRS Pub. 561).
  • Charity refuses the gift after appraisal: if the charity declines at closing, you may be left with appraisal fees and need to reevaluate options like selling or donating to another charity.
  • Unpaid mortgage or environmental liability on the property that the charity won’t accept.
  • Incorrect deduction limits claimed on Form 1040 Schedule A: check AGI limits and carryforward rules (Pub. 526).

Sample scenario and quick math

Donor owns a rental home purchased years ago for $150,000; FMV today is $400,000. If the donor gives the home to a public charity that intends to use the property for charitable housing programs, and the donor has sufficient AGI room, they may claim a charitable deduction for $400,000 (subject to AGI limits). If instead the charity will sell the house immediately and the donor’s deduction is limited to basis, the deduction may be $150,000. That difference is why confirming the organization’s intended use is crucial.

When to consider alternatives

Red flags for IRS audits

  • Large noncash deduction claimed without appraisal or with an appraisal from a non-qualified appraiser.
  • Donations of property with unique valuation issues (e.g., conservation easements, severely distressed real estate).
  • Inconsistent use statements from the charity (told donor it would keep the property, later sold it).

Frequently asked practical questions

  • Can I donate a property with a mortgage? Yes, but the mortgage complicates the deduction. The IRS scrutinizes transfers that relieve debt; often the lender must approve and the charity must assume or the mortgage must be paid off.
  • Who pays closing costs? Typically the donor covers customary seller-side costs unless otherwise negotiated; discuss with the charity.
  • Will a charitable deduction save more than selling and giving cash? It depends on your gain, tax bracket, and the charity’s plan — run the numbers with a CPA.

Next steps and authoritative resources

Professional disclaimer: This article is educational and not individualized legal or tax advice. Tax laws change; consult your CPA, tax attorney, or estate planning advisor before donating real estate. In my practice, coordinated planning with the receiving charity, a qualified appraiser, and tax counsel reduces surprises and preserves the intended tax benefit.