Best method of donating

[Openfire]

Taxpayer sold a house to a missionary. Taxpayer wants to donate the balance of the home (debt) to the missionary through a ministry. the missionary still owes around 50K. What would be the best method to donate that would be advantageous to both parties?

[taxea]

Google: best way to donate a house to charity. Provides numerous options.

[Koss]

Donation

Did the taxpayer finance the sale of the home? In other words, is it a seller-financed mortgage loan?

If that's the case, she better hope it was all done correctly, by an attorney or a title company. The person who sold the home should be identified as the lender on a mortgage note, and the note should have been filed at the county recorder's office.

Or was it a land contract? These things sometimes vary from state to state. Did the taxpayer sign a deed when she sold the home?

If she is holding a mortgage note, in which she is the lender, and the missionary is the borrower, then I think the answer is fairly straightforward. The note is an asset that she owns. Loosely speaking, it is similar to owning a corporate bond or a certificate of deposit.

She can sell the note, or she can give it away. She can donate it to a 501(c)(3) organization, such as the organization that the missionary is associated with. Then, at its discretion, the organization has the option of forgiving the debt, and cancelling the note.

This will generate a valid tax deduction for the taxpayer. The missionary may end up with income from the cancellation of debt. I'm not sure there's any way to avoid that.

A couple warnings: She has to donate the note to a charitable organization with no strings attached, and no special conditions. The decision as to what to do with the note, and whether to forgive the debt, must rest exclusively with the organization, otherwise is not a valid charitable contribution.

And good luck determining the fair market value of the note. It is not the outstanding loan balance. Somehow you have to calculate the present value of the note.

If the note meets all FHA criteria, then theoretically it could be sold on the secondary market. Talk to someone in the mortgage industry, and they might be able to put a value on it. But if the terms of the note are kinky, or if the borrower was a very high credit risk who could not qualify for a loan from a mortgage lender, it's going to be very difficult to determine the present value of the note.

If it's a land contract, or something else, then the whole affair may be more complicated.

Thinking outside the box, here's another possibility: What if the missionary makes the payments to her as required by the note, and she simply turns around and donates that money to the missionary's organization? The organization could then, at its discretion, pay the missionary a monthly stipend of some sort, effectively returning the money to him. It may or may not be taxable to him. That's really between him and the organization and their accountants. The problem with this approach is... How long is this going to go on? For the life of the note? How many years is the note?

BMK

[Koss]

Dangers of Search Engines

According to the original post, she is not trying to donate a house.

She sold the house. She can't donate a house that she no longer owns.

BMK