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So I currently have a large amount of money 'allocated' to charitable donations. It will include two inheritance and probably be around $200,000. In fact it's more then my annual income (around $145,000 I think?), so I couldn't donate all the money in one year. I already donate a fairly high percentage of my income to charity every year, so it may in fact take quite a few years to manage to donate all the money I will have this year in addition to my usual yearly contributions even if I donated the maximum amount I could claim on my taxes every year.

I have also been debating for awhile buying a large property to rent out. I am in an area where rental values are quite profitable and I have a somewhat unique means of finding high income vetted renters who would be a lower risk then the average renter. If I did decide to buy a rental it wouldn't be until after the housing market had settled some and prices were a bit more reasonable.

Assuming I considered buying a rental location with the intent of using it solely to increase my potential future charitable investments I'm wondering if there is a way that I could officially register the entire house as being owned as a non profit and thus all rental income should not be taxed? Assuming it is possible at all how much effort would it take originally, and would it add any extra logistical effort into my managing the house (finding people to rent it, recording rental profits etc?) Similarly how could I do that while still gaining the maximum tax back from charitable donations?

Basically could investing in a rental property (assuming I decide it would have a positive ROI to being with) be a viable option over just donating the money I currently have?

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    so I couldn't donate all the money in one year ... Why not?
    – yoozer8
    Commented Jun 8, 2021 at 22:55
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    He doesn't mean that. He means if he donated all the money in one year he wouldn't get the tax refund he would otherwise be entitled to.
    – DJClayworth
    Commented Jun 9, 2021 at 0:51
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    @DJClayworth charitable deductions have five year carry forwards, its not a factor at all unless dsollen wants it to be
    – CQM
    Commented Jun 9, 2021 at 1:17
  • @CQM when you add in the fact that I already dontate 50% or more of my gross, post tax, income to charity it would likely take more then 5 years to cover the full 200,000 since most of my 60% per year limit on donating while gaining a refund is already allocated to my regular annual donations.
    – dsollen
    Commented Jun 9, 2021 at 13:11

4 Answers 4

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The first thing to remember: Just because something is a nonprofit or a not-for profit doesn't mean it is a charity. A Credit Union is a non-profit, but it isn't a charity.

That property could be setup as charity if the property was being used to house homeless people or some other disadvantaged group. You would have to work with your tax advisor to make sure all the proper paperwork is in place.

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Not an answer to your question, but...

The standard way to donate an amount that is too large is to loan a charity the money and have them make progressive repayments offset by donations.

So you have $200,000 and can get tax relief back on $50,000 in a normal year. You loan a charity $200,000, on terms where they pay you back $50,000 every year for four years. You agree to donate $50,000 every year for four years. You can claim tax relief on $50,000 for four years. No actual money changes hands after the initial transfer.

This doesn't work if for some reason you end up not getting the full tax relief on each of the four years - but you can't lose any more money than your initial donation. A charity will have a lawyer that will know how to sort it out.

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Appreciated real estate can be donated to a donor advised fund. However, the fund will then sell the real estate; it will neither manage it nor allow you to manage it.

Schwab Charitable appears to have a $0 minimum asset value to open a donor-advised fund.

If you wish to continue to manage the property, perhaps a local charity would be interested in your plan to donate and then to help the charity manage the property. The charity would then have the potential problem of generating Unrelated Business Income.

Finally, you could consider that landlords have a number of ways to minimize their taxes. You could own the property personally, work to minimize your taxes and donate the rental profits as you like.

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Non-profits can own investments of almost any kind, and earn from investments of almost any kind.

The non-profit has several options:

  1. You can donate the cash to the non-profit and the non-profit can buy the house and sit on it, or attempt to earn rent from it.

  2. You can buy the house and donate it to the non-profit, and the non-profit can also attempt to earn rent from it.

In general, number 2 can become more favorable for an expanded range of assets because the jeopardizing investments regulation does not apply to donated investments, only investments that were subsequently bought by the non-profit.

By the way, why are you worried about how much you donate to a non-profit? The amount you donate rolls over into future years for up to five years, charitable deductions have roll overs. This is not a factor unless you just want to keep your money longer. But this still seems to not be a factor because either entity (yourself or the non-profit) can own the house for investment.

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