Nonprofit organizations accept many different types of donations, from cash to in-kind goods and services. One of the less common donation types is real property, such as land or buildings. Donations of real property can be very useful and provide great benefit to a nonprofit organization. But what happens if your organization shifts its strategy or outgrows its use for the property?
In some cases, real property donations are restricted with stipulations that indicate what pathways can be taken if the nonprofit can no longer utilize the property. However, donations of real property can also be unrestricted – with no stipulations on its future use or disposal. Depending on these restrictions (or lack thereof), one creative option is for your organization to donate the property to another nonprofit. Doing so is often a win-win situation for both organizations. The nonprofit donor frees itself from continued repair and maintenance of the property, while the receiving nonprofit can use the property to further its mission.
Since the passing of real property from one nonprofit to another is not a common occurrence, finding specific accounting guidance on this situation can be tricky. The framework for classifying transfers of assets under ASU 2018-08 applies to both the receiving nonprofit as well as the donating nonprofit, so that guidance is a good starting point for both organizations. Assuming there are no contingencies – and the donating nonprofit does not receive commensurate value – there is no exchange, and the transfer is handled as a nonreciprocal transaction, specifically a contribution.
Recording the recipient’s side of the transaction is relatively simple from here. The real property is added to the nonprofit’s fixed assets (at fair market value) on the date of transfer, and reported as contribution support in the Statement of Activities.
Note: ASU 2020-07, affecting the presentation of contributed nonfinancial assets, goes into effect for fiscal years beginning after June 15, 2021. At that time, contributions of nonfinancial assets, such as real property, must be presented separately from contributions of cash and other financial assets on the Statement of Activities.
Guidance for the nonprofit donor can be found in Subtopic 720-25, Other Expenses – Contributions Made. Contributions made are recognized as expenses at the time the assets are transferred to the recipient. Since contributions made are also reported at fair market value, a gain or loss may need to be recognized if the carrying value differs from the fair market value.
Consider this example:
In 1980, Nonprofit A received an unrestricted donation of 25 acres of land. At that time, Nonprofit A determined the land would make a suitable bird sanctuary, which would help further the organization’s conservation mission. As a result, Nonprofit A’s fixed assets were increased by the fair market value of the land ($12,500 in 1980) and that amount was also reported as contribution support.
Many years later, Nonprofit A no longer has the resources to maintain that land. However, they are aware that another organization, Nonprofit B, operates a neighboring nature preserve. Nonprofit A approaches Nonprofit B, and ultimately decides to donate those 25 acres of land to help the other organization expand their nature preserve.
In 2021, Nonprofit A passes ownership of those 25 acres to Nonprofit B. The transaction is recorded as follows:
Nonprofit A decreases its fixed assets by $12,500 (the original 1980 fair market value of the land), and reports an outgoing contribution expense of $50,000 (the current 2021 fair market value of the land). In order to balance the transaction, Nonprofit A will also need to report a gain of $37,500 to account for the appreciation of the land from 1980 to 2021.
Nonprofit B adds the land to its fixed assets (at the 2021 fair market value of $50,000). Nonprofit B also reports the $50,000 as contribution support in 2021.
Although this is a simple example, it illustrates the basic reporting of both sides of a donation of real property from one nonprofit to another. ASU 2018-08 is a good starting point to research more complex situations, as classifying the transaction will lead to guidance on how to properly report the transaction.
