1. Federal Historic Tax Credit (HTC)
The Federal Historic Tax Credit (HTC) remains at 20 percent, applied to the eligible rehabilitation costs of income-producing historic properties. This incentive is critical for the rehabilitation of income-generating portions of qualified properties such as historic theaters.
Key Requirements:
• The property must be a certified historic structure, listed or eligible for listing in the National Register of Historic Places.
• Rehabilitation must meet the Secretary of the Interior’s Standards for Rehabilitation.
• HTC benefits are typically delivered through a joint venture or master tenant structure to allow credit monetization, while preserving nonprofit mission control.
Legal Basis:
• Treasury Regulation § 1.48-4(a)(1) specifies that the credit equals 20 percent of qualified rehabilitation expenditures for a qualified rehabilitated building.
• Qualified rehabilitation expenditures must exceed the greater of the building’s adjusted basis or $5,000 within a 24-month or qualifying 60-month measurement period.
• The rehabilitation must be certified by the National Park Service as consistent with the property’s historic character.
Claiming Process:
• Applicants submit National Park Service Form 10-168, Part 3, Request for Certification of Completed Work.
• The credit is claimed on IRS Form 3468 and is now taken ratably over five years, following changes enacted by the Tax Cuts and Jobs Act (Dec 2017).
2. One Big Beautiful Bill Act (OBBBA) Enhancements
Enacted in July 2025 (P.L. 119-21), the OBBBA made significant, permanent changes to federal tax incentives, including:
Opportunity Zones (OZ):
• Made permanent with a rolling five-year gain deferral.
• Ten-year tax-free treatment for gains on Qualified Opportunity Fund (QOF) investments held for a decade.
• New Qualified Rural Opportunity Fund designation with a 30 percent basis step-up and reduced improvement threshold.
Low-Income Housing Tax Credit (LIHTC):
• Low-Income Housing Tax Credit (LIHTC):
• Bond-financing threshold for 4 percent credits reduced from 50 percent to 25 percent.
100 Percent Bonus Depreciation:
• Permanent reinstatement for assets placed in service after January 1, 2025, including equipment and interior improvements, with provisions through 2030.
3. Massachusetts Historic Tax Credit (MHRTC)
The MHRTC remains at 20 percent and is transferable or allocable to other entities, allowing flexibility for nonprofit and developer collaborations. It can be stacked with the Federal HTC for a combined incentive value of up to 40 percent.
4. New York State Historic Tax Credit (NYS HTC) for Manhattan
Commercial Properties:
• 20 percent credit on Qualified Rehabilitation Expenditures (QREs) up to $5 million.
• 30 percent credit on QREs up to $2.5 million for qualifying small projects.
• Refundable, with the option to carry forward unused amounts.
• Pending legislation (S2124) may allow pass-through or transfer separate from Federal HTC.
Other NYC Incentives:
• 467-m Tax Exemption: Major property tax relief for commercial-to-residential conversions.
• 421-g, J-51, and 485-x Programs: Provide abatements for conversions and residential rehabilitation.
• REAP / LM-REAP / RACE: Employment relocation incentives worth $3,000–$10,000 per job per year.
5. Opportunity Zone and HTC Stacking
Combining Opportunity Zone investments with HTC can significantly increase financial returns. This approach allows for gain deferral and eventual tax-free appreciation while capturing the benefits of historic rehabilitation credits, provided substantial improvement requirements and OZ compliance are met.
6. Structuring and Non-Cash Donations
Suggested Structure:
| Entity | Role | Purpose |
|---|---|---|
| 501(c)(3) Nonprofit | Property Owner | Maintains mission, holds title |
| Developer Entity | Investor / Developer | Provides capital, expertise, and construction |
| Joint Venture LLC | Development Vehicle | Allocates credits, profits, and losses |
| Master Tenant (optional) | HTC Pass-through | Allocates credits under IRS safe harbor |
Non-cash charitable contributions such as donated materials can be acknowledged by the nonprofit, providing additional tax benefits to the donor.
7. Execution Steps
1. Feasibility: Determine property eligibility for HTC and OZ status.
2. Legal Structuring: Form a joint venture and prepare credit allocation agreements consistent with IRS safe harbor guidance.
3. Financial Modeling: Incorporate HTC, MHRTC or NYS HTC, LIHTC, OZ benefits, 100 percent depreciation, and charitable deductions into IRR calculations.
4. Compliance: Engage preservation consultants, tax advisors, and legal counsel with experience in HTC, OZ, and nonprofit structuring.
5. Timing: Align capital deployment with key legislative timelines, particularly for OZ rules and pending NYS credit transferability.
8. Key Legal and Tax Considerations
• Five-year recapture period for HTC.
• Avoidance of Unrelated Business Income Tax (UBIT) for nonprofit participants.
• Compliance with IRS substantiation requirements for non-cash gifts.
• Coordination between state and federal credit rules to avoid basis reductions or double-dipping.
Charitable Donation of Non-Cash Deductions
Donating appreciated real estate to a qualified public charity can produce a fair market value deduction, avoid recognition of built-in capital gain, and deliver significant impact for the recipient. When a property also contains tangible personal property that will be removed and donated, the personal property deduction is evaluated under a different set of rules, most notably the related-use rule, qualified appraisal requirements, and Form 8283 substantiation. Thoughtful procurement, clean title, proper valuation, and extensive documentation are essential.
Part A. Procuring real estate with the intent to donate
1. Acquisition structure. The cleanest path is to acquire title personally or through a single-member disregarded LLC. Gifting an interest in a partnership or multi-member LLC that holds real property introduces additional issues such as inside liabilities, “hot asset” recharacterization under section 751, excess business holdings if a private foundation is the donee, and potential unrelated business taxable income for the charity.
2. Diligence before purchase. Confirm zoning, environmental status, deed restrictions, conservation encumbrances, easements, and whether the intended donee will accept the property. A written gift acceptance letter from the charity that outlines intended use or sale materially strengthens the related-use analysis and timing of the gift.
3. Holding period. To deduct fair market value for appreciated real property contributed to a public charity, the property must be a long-term capital asset held more than one year. If held one year or less, the deduction is limited to adjusted basis.
4. Debt on the property. If the property is subject to debt that the charity assumes or takes subject to, the transfer is treated as a bargain sale. The donor is treated as having sold a portion equal to the debt or other consideration and donated the balance. The charitable deduction equals fair market value minus the amount realized. Any gain on the sale portion must be recognized. Consider paying off debt before the gift when feasible.
5. Partial interests. A gift of a partial interest in property is generally not deductible unless it is a qualified undivided fractional interest, a remainder interest in a personal residence or farm, or a qualified conservation contribution. If using an undivided fractional interest strategy, all owners must have the same rights, and the valuation must reflect appropriate discounts and the donee’s use plan.
6. Bargain sale planning. Bargain sale to the charity can be used when the donor seeks some liquidity while also making a gift. Ensure the purchase agreement and deed clearly state consideration, and ensure contemporaneous acknowledgment reflects the gift portion.
Part B. Federal income tax treatment for real estate contributions
1. Deduction amount. For appreciated real property contributed to a public charity, the deduction equals fair market value if held long term. For contributions to a private nonoperating foundation, the deduction is generally limited to the donor’s basis unless the property is qualified appreciated stock. If the donor elects to use basis in order to use the higher percentage limitation, that election applies to all capital gain property contributed in the year.
2. Percentage of income limitations and carryforward. Long-term capital gain property to a public charity is subject to a 30 percent of adjusted gross income limitation, with a five-year carryforward for any excess. Basis-limited elections may be eligible for the higher percentage limitation under section 170(b). Different limits apply to private foundations. Conservation contributions have special percentage limits and a longer carryforward period.
3. Substantiation and appraisal rules.
• Contemporaneous written acknowledgment from the donee is required for contributions of 250 dollars or more.
• A qualified appraisal is required for non-cash property with a claimed value greater than 5,000 dollars. For real estate with a claimed value greater than 500,000 dollars, the appraisal must be attached to the return.
• Use Form 8283 Section B for real estate. The donor, the qualified appraiser, and the donee must sign. The appraisal must be prepared by a qualified appraiser in accordance with section 170(f)(11) and Treasury Regulation section 1.170A-13, with an effective date no earlier than 60 days before the gift and received by the donor before filing.
• If the charity disposes of the real estate within three years, the charity must file Form 8282. Disposition does not automatically affect the donor’s deduction, but it can trigger IRS review of related use assertions.
4. Valuation standards for real estate.
• Fair market value is the price a willing buyer would pay and a willing seller would accept, both having reasonable knowledge of relevant facts and neither being under compulsion.
• The appraisal should address highest and best use, market approach comparables, income capitalization where applicable, cost approach when relevant, legal and physical characteristics, environmental conditions, title restrictions, encumbrances, and market exposure time.
• Appraisers must be qualified by education and experience, must adhere to recognized appraisal standards, and are subject to penalty under section 6695A for gross misstatements.
5. Special real estate topics.
• Remainder interests in a personal residence or farm are deductible based on actuarial valuation under section 170(f)(3)(B).
• Conservation easements are highly specialized and must comply with section 170(h) and extensive regulations.
• Demolition or intentional destruction eliminates value. In Rolfs v. Commissioner, a donation of a house for fire-department burn training produced no deduction because the value at the time of the gift, considering the planned destruction, was essentially zero.
Part C. Donating tangible personal property removed from the property
1. Classifying the property. Once removed from the real estate, items such as appliances, cabinets, lighting, doors, windows, flooring, HVAC equipment, and similar components are tangible personal property for federal tax purposes. The deduction rules for tangible personal property are different from the rules for real estate.
2. Related-use rule. For tangible personal property contributed to a public charity, the fair market value deduction is allowed only if the charity’s use of the property is related to its exempt purpose. If the use is unrelated, the deduction is limited to the donor’s basis. Charities that distribute building materials to support affordable housing or disaster relief generally satisfy related use. Retail resale by a charity can be related use if the organization’s exempt purpose includes operating thrift outlets to fund programs.
3. Three-year disposition rule and Form 8282. If the charity disposes of the contributed personal property within three years, it must report the disposition on Form 8282. If the charity certifies at the time of the contribution, or upon disposition, that the intended use is related or that the disposition was due to unforeseen circumstances, the donor’s fair market value deduction is preserved. Otherwise, the donor’s deduction may be reduced to basis, and there may be recapture.
4. Valuation for deconstructed materials and household goods.
• Fair market value is the resale price in the secondary market, not replacement cost for new materials. Appraisals must use market data from salvage yards, recyclers, ReStores, auction results, and direct comparables for similar used goods. This is what we do at The Green Mission Inc. and GM_ESG.
• Condition strongly affects value. The appraisal should provide objective condition statements, identify model and serial numbers where available, and adjust comparables for age, functionality, and removal risk.
• For groups of similar items, grouping is allowed if the items are similar in nature and condition, but each major component should be individually described when values exceed the appraisal threshold.
5. Appraisal and substantiation for personal property.
• For gifts, or groups of similar items, valued at more than 5,000 dollars, a qualified appraisal and Form 8283 Section B are required.
• If the total for a category of similar items exceeds 5,000 dollars, the appraisal requirement applies even if any single item is less than 5,000 dollars.
• Maintain contemporaneous written acknowledgments that describe the items and state whether any goods or services were provided in return.
6. Services and labor. The value of the donor’s services or the donor’s employees’ services is not deductible. Only the donated property and the donor’s out-of-pocket costs related to the donation are deductible.
Part D. Practical structuring paths
1. Outright donation of land and building. Execute a deed to the charity after securing a gift acceptance letter. Provide title insurance, environmental disclosure if requested, and a qualified appraisal. If the charity plans an immediate sale, request a statement that the sale supports the charity’s exempt purposes and is consistent with its policies.
2. Bargain sale to the charity. Negotiate a sale price below fair market value. The charitable deduction equals the appraised value minus the sale price. Calculate and plan for gain on the sale portion. Coordinate with the charity regarding financing or assumption of debt.
3. Donate the building for removal and separately donate salvaged materials. If the local jurisdiction treats the building as personal property upon removal, the donation is of tangible personal property and the related-use rule will apply. Structure transfer documents carefully to avoid assignment of income issues and to reflect the charity’s control over removal and disposition. Appraise the materials at the time of transfer to the charity, not at replacement cost.
4. Donate undivided fractional interests in real estate. Transfer an undivided fractional interest to the charity with identical rights as the retained interest. Coordinate use and exit rights in a tenants-in-common agreement. Appraise subject to appropriate discounts if warranted.
Part E. Percentage limitation planning and examples
Example 1. Donor contributes long-term appreciated real estate worth 5,000,000 dollars with 1,500,000 dollars basis to a public charity. The deduction is 5,000,000 dollars, limited to 30 percent of adjusted gross income in the year of gift, with a five-year carryforward for any unused portion. No capital gain is recognized.
Example 2. Donor conveys the same property to the charity subject to 1,200,000 dollars of nonrecourse debt. The transaction is a bargain sale. Amount realized equals 1,200,000 dollars. Deductible gift equals 3,800,000 dollars. The donor recognizes gain on the sale portion, computed under the normal rules with appropriate basis allocation.
Example 3. Donor removes cabinetry, appliances, and doors from a residence and contributes them to a qualified charity that distributes building materials to low-income homeowners. A qualified appraisal values the items at 85,000 dollars using secondary market comparables. The charity confirms related use. The donor claims a fair market value deduction of 85,000 dollars subject to percentage limits and substantiation requirements.
Part F. Documentation checklist
• Gift acceptance letter that describes intended use or sale policy.
• Deed or bill of sale conveying title, with representations regarding liens and environmental matters where appropriate.
• Qualified appraisal that complies with section 170(f)(11) and Treasury Regulation section 1.170A-13.
• Form 8283 Section B signed by the donor, the appraiser, and the donee. Attach the appraisal if required by the dollar thresholds.
• Contemporaneous written acknowledgment from the charity for all gifts of 250 dollars or more, stating whether any goods or services were provided.
• For deconstructed materials, detailed itemization, condition statements, photographs, serial numbers where available, and weigh tickets or counts at transfer.
• Calendar and monitor Form 8282 notices from the charity for dispositions within three years.
Part G. Authorities to consult
Internal Revenue Code section 170 and related Treasury Regulations, including sections 1.170A-13 and 1.170A-14 for conservation contributions. IRS Publication 526 for charitable contribution rules, IRS Publication 561 for determining the value of donated property, Form 8283 and instructions, and Form 8282 and instructions. Relevant cases include Rolfs v. Commissioner concerning property destroyed in fire-training scenarios and cases addressing appraisal substantiation failures that resulted in denial of deductions.
Final recommendations
1. Confirm intended donees and obtain written acceptance before purchase.
2. Avoid debt at the time of gift when possible.
3. Target long-term holding periods for fair market value treatment.
4. Use qualified appraisers with experience in both real property and deconstructed tangible personal property.
5. Maintain complete substantiation and align all transfer documents with the valuation and tax positions you intend to take.
