Running a nonprofit organization means everything from figuring out how to best serve your community to fundraising and getting other donations, so you have what you need to keep the organization going—including how to get a building donated to your nonprofit. That might sound like you’re reaching for the sky but getting a building donated to a nonprofit happens more than you think. Many building owners like to give back to the community by donating property to a 501c3 because it fulfills their company’s philanthropic mission and gives the property owner a nice tax incentive. Here’s what to know about real estate donations and how you can approach building owners about donating property to your nonprofit. But, first, here are the terms you need to know.
Local Building Donations
One way to find potential building donations for your nonprofit organization is to drive around your local area and search for buildings available for sale, lease, or rent. First, look at buildings only in commercially zoned areas to ensure your charity can legally operate out of the space. Then, inquire about each facility by contacting the real estate agent or broker listed for the property or searching through available real estate ownership filings made available through state and county level government agencies. You can also check with local commercial realtors to see if they know of any buildings or space in a building that is available.
In an outright donation, the property deed is transferred directly to the nonprofit. The building donation may come from an individual or company. The donor doesn’t have to pay any capital gains tax, and they receive a tax deduction for donating to a nonprofit.
A bequest is a donation occurring at the time of the donor’s death. The nonprofit is named as the beneficiary of the building upon the donor’s passing.
The donor agrees to sell the building to the nonprofit for less than fair market value in a bargain sale. In this scenario, the donor only pays capital gains on the “uncharged portion.” In other words, that’s the difference between the value of the property and how much it was sold to the nonprofit for. Again, this lessens the tax liability for the donor.
Charitable Gift Annuities
The building is donated to your nonprofit with a charitable gift annuity, and then the organization pays the donor in smaller fixed payments (annuity income). Some of the annuity income is tax-free for the donor. The nonprofit may decide to sell the property; however, the annuity payments stay the same.
Charitable Remainder Trusts (CRT)
Similarly, a Charitable Remainder Trust (CRT) allows the donor and nonprofit to share in the property’s value. Although the property owner sells the property, the proceeds are placed in a trust for the named beneficiaries. Typically, the beneficiary is the donor who receives a percentage of the income for the rest of their life or a set term—such as 20 years. Then the remainder of the trust goes to the nonprofit named in the trust.
Retained Life Estate
Building donations can also be gifts of primary or secondary homes. In a retained life estate, the donor gives the property to the nonprofit and then either continues to live in it for the rest of the donor’s life or a set number of years. When the term is over, or the donor passes away, the home goes to the nonprofit to use or sell. Because the nonprofit owns the deed, the donor (or their estate) gets a tax deduction.
Can Nonprofits Rent Out Space?
You can also look for building owners willing to rent out space in their building for no cost to a nonprofit. Many building owners with extra room to rent prefer to rent to nonprofits to give back to their communities. And they get a tax deduction, as well.
Building Grants for Nonprofit Organizations
As a nonprofit, you are probably familiar with many of the grants available for all types and sizes of businesses. Check Grants.gov for nonprofit real estate grants to build a new property for your organization or to make improvements to your already existing building.
This may happen more rarely, but there are individuals and companies donating land to nonprofits in your state. Check out empty spaces, find out who owns them, and if they’re open to donating the space. Or you can contact your state government and ask about any current land opportunities. If you’re interested in this option, make sure you put the word out about your nonprofit and your property needs to as many people and organizations as you can.
Do Your Homework
Before you start your “campaign” to get a building donated to your nonprofit, it’s crucial to prepare. Make sure you’re ready to answer any questions or provide any backup documents a property owner may ask you. Here are some steps you can follow:
- Create a detailed description of your organization’s current property, including the number of rooms, property size, and resources.
- Then detail the costs involved with your current building, including maintenance, repairs, landscaping, utilities, etc.
- Calculate how much your nonprofit has grown and what additional growth you anticipate in the future. Part of your “sales pitch” is you need room to grow, so this calculation is vital.
- Write a letter describing your needs for the property and all the benefits donating it to your organization offers. If you are applying for a grant, consider using a professional grant writer.
- Be ready to offer tours of your current facility so interested donors can see the good your organization does and how much it would benefit from their donation.
- Invite potential donors to your nonprofit’s charitable events. The more exposure your nonprofit receives, the better.
Finding the Right Fit
Getting a building donated to your nonprofit is not an easy task, so do not expect to get results overnight. However, the organization’s building is the heart of the operation and consequently one of the most significant expenses in running a nonprofit. So, while you’re looking for building and/or property donations, be sure and have a backup plan to make sure you can cover the many daily operating expenses your organization faces. A nonprofit line of credit can help.
A nonprofit line of credit is like a loan for nonprofits; however, it is revolving credit, which means you don’t pay anything when you’re not using it, and when you pay it back, the total amount is available to use again.
At Financing Solutions, many of our nonprofit clients apply for and get their line of credit lined up before there is a need. A nonprofit credit line from Financing Solutions means your organization is always prepared. Contact us today to learn more!