Donate a House to Charity With a Mortgage
Many charitable institutions accept donations of real estate, and the tax benefits for those who donate can be substantial. Most donations will take the form of property that's unencumbered by a mortgage or other type of lien. But even if you don't own a piece of property free-and-clear, there are ways to donate it so that you can benefit a cause, and save yourself some tax headaches along the way.
Instructions
1. Have the property you wish to donate independently appraised to get a clear idea of how much equity you have in it. In effect, your donation will only be equal to the equity, and not the full value of the property. This appraisal, and properly completed paperwork from it, will also be key when you come to claim your tax deduction.
2. Consult with the charity you wish to benefit, and discuss whether they are willing to accept a donation with the complication of a mortgage. Most charities have very clear policies and procedures for real estate donations.
3. Propose a "bargain sale." In this transaction, you sell the property to the charity for the value of the outstanding mortgage. They get a bargain, which is effectively worth much more than they paid for it, and you have the proceeds to pay off the outstanding debt. For example, you may own a house worth $400,000, but you still have a mortgage of $50,000 on it. You would sell the house to the charity for $50,000, and clear your mortgage with those proceeds. The charity then benefits from an effective $350,000 donation.
4. Be aware of the tax implications. If you carry out a bargain sale, your charitable deduction is limited to the value of the equity in the home (the $350,000 in our example)--not the fair market value given by your appraisal. However, such a sale will also reduce capital gains tax liability.
Tags: bargain sale, Charity With, Charity With Mortgage, Donate House, Donate House Charity
