Real estate assets held in a retirement account are ideal for financial planning in the area of charitable gift giving.  Purchasing real estate for a retirement account and then donating it to a favorite non-profit organization results in two major deductions from income taxes. 

The income from the real estate can still be received as part of the gift to a non-profit entity in many cases, resulting in an ideal way to support a worthy cause yet still benefit from the rent produced by the property.Real estate investing - retirement account

The first income tax savings comes when putting the funds in a retirement account such as a 401(k) or individual retirement account (IRA) to purchase real estate.  For this, generally an individual’s taxable income is reduced dollar-for dollar for the amount put in the IRA, 401(k) or other retirement account.  That results in significant tax savings in itself.

But the tax gains can be even higher depending on the retirement account.   As detailed in “Save Big,” a recent article on retirement planning in Forbes by Ashlea Ebeling, “…A 52-year-old entrepreneur netting $300,000 could use a one-person defined-benefit pension plan combined with a 401(k) to shelter a total of $169,800 from current income taxes…”

After the retirement account has been funded, the real estate can then be purchased to be donated.  For the real estate investment, it can be in the form of owning the property itself or holding the note.  Known as private mortgages, these notes secured by real estate are ideal for retirement accounts and gift giving.  According to Jerry Cohen, President of EquityBuild, a premier private mortgage investment firm, “There are two methods for getting started in private mortgages: Mortgage Pools and Direct Lending.  Mortgage pools are like the mutual funds of private mortgages. Each investor's money is pooled with the other investors participating in the pool and the money is used for private lending.

Cohen, who was just awarded the prestigious “Moving America Forward” honor for the success of EquityBuild and EquityBuild Finance, its financial arm, furthered that, “Direct lending is typically reserved for seasoned real estate professionals due to the level of expertise that is needed to identify undervalued properties...”

When the real estate property or mortgage note is donated to an eligible non-profit, a major tax break is then received.  To maximize the benefits of this act of grace of charity, planning should be done with a tax advisor.  There are many different ways to facilitate this transaction to maximize the gains for all parties involved while optimizing the process to achieve all goals and objectives.

A major end result might be for income to still be received from the donated property or note.  That can be structured with the assistance of a tax advisor.  This type of donation is often used with colleges, universities, and other non-profit organizations with sizeable endowments.

No matter what the ultimate goal of donating property or mortgages, the tax savings from the deductions at both stages can result in a significant amount for the individual.  This is just one of the many advantages of buying real estate for a retirement account.  As with all tax matters, detailed instructions should always be obtained from competent advisors who are experts for that specific type of transaction.  With that guidance, there are many different ways to support a charity and save on taxes while receiving income from real estate or a private mortgage note on a property.

by, Jonathan Yates: EquityBuild News Contributor