The loan payoff amount
From your servicer, including any second mortgage or home equity line.
Donating a property with a mortgage: how a bargain sale works
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Donating a Property With a Mortgage
A mortgage does not automatically rule out donating a property, but it changes what the gift is. When real estate with a loan is donated, the debt has to be satisfied, which makes the transaction a bargain sale: part sale and part gift. Real Estate with Causes reviews mortgaged property case by case. Whether it works comes down to three numbers: the loan balance, the equity and the lender’s terms.
Tell us about the property
Every property gets a look. Name, phone and email are the only required fields.
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We Handle the Paperwork
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501(c)(3) Recognized Charity
What a bargain sale means for you
When a property with a loan is donated, the loan is paid off from the property’s value or assumed, and the IRS treats that as if you had sold part of the property for the amount of the debt. You may recognize gain on that sale portion, and your charitable deduction covers only the equity you actually give.
An example of the arithmetic
If a property appraises at $300,000 with a $100,000 loan, roughly one third is treated as a sale and two thirds as a gift. Your basis is split in the same proportion. Your advisor should run the real numbers.
What the lender and the equity decide
Most mortgages have a due-on-sale clause, so the loan is paid off when the deed transfers. That means the property needs enough equity to cover the payoff, the cost of the transfer and the eventual sale, with meaningful value left over.
We have reviewed many mortgaged properties. Some work well; others fall through on the numbers or the lender’s terms. We will tell you early and plainly which yours looks like.
What to have ready when you call
Three numbers answer most of the question.
An estimate of value
A recent appraisal, tax assessment or broker opinion.
Whether payments are current
A loan in default adds urgency and changes the options.
Mortgaged property donation questions, answered
Can I donate a house that still has a mortgage? +
Possibly. A mortgage does not automatically rule a gift out, but the loan has to be satisfied, which makes it a bargain sale. It works when there is enough equity above the loan. Tell us the balance and the value.
Who pays off the mortgage? +
The loan is paid from the property’s value at transfer or when it is sold, depending on how the gift is structured and the lender’s terms. The structure is agreed in writing before anything is signed.
Will I owe tax if I donate a mortgaged property? +
You may. In a bargain sale, the debt relief is treated as sale proceeds, so you can recognize gain on that portion even though you received no cash. Your advisor should calculate it.
What if I owe more than the property is worth? +
Then there is little or no equity to give, and the conversation usually turns to your lender. Tell us the numbers and we will walk through it with you. The options run through your lender: a short sale, a loan modification or a deed in lieu of foreclosure.
Is there another way to give if the mortgage makes a donation impractical? +
Yes. Some owners sell the property locally, pay off the loan and donate part of the proceeds as a cash gift, which we receipt in the usual way.
We do not provide tax or legal advice. See IRS Publication 526, Publication 561 and the Form 8283 instructions, and consult your own advisor.
Related guides
Tell us about the loan and we will review it
Send the loan balance, the lender and a rough value, and we will tell you plainly whether a donation can work.
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