Helping Nonprofits with Real Estate

Helping Nonprofits with Real Estate

In 1917 Congress enacted the War Revenues Act to finance WWI and greatly increased tax rates. The major concern amongst congress was that it would greatly impact charitable giving. As a compromise, the charitable tax deduction was created. There was an alignment with the governing philosophy as nonprofits have typically assumed the responsibility of the social welfare net that the government was ill prepared for and frankly did not want to provide for.

The exemption from taxation of money or property devoted to charitable and other purposes is based upon the theory that the Government is compensated for the loss of revenue by its relief from financial burden which would otherwise have to be met by appropriations from public funds, and by the benefits resulting from the promotion of the general welfare. – ROBERT W. WILLAN, INCOME TAXES, CONCISE HISTORY AND PRIMER 31 (1994)

We have created a culture in the USA that we support charities that do the jobs the government is unwilling or incapable of doing. Annually Americans give +/- $300 billion to 1.3 million non-profits, but less than 3% of it is real estate ($8-9 billion). Approximately 40-45% of American wealth ($65 trillion) is tied up in real estate. That equates to $27-28 trillion. It is incredibly illiquid, management intensive asset class that requires expertise and money to manage; HOWEVER, the value within that real estate is incredible, available and is tax deductible if donated or sold to a charity. The benefit to the charity is that it can sell the asset and get a substantial payday. The donor avoids capital gains and recapture taxes, and the donee still gets the cash.

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