Should a Church Accept Donations in the Form of Stocks, Real Estate, or Other Non-Cash Assets?

 

Traditionally, churches have relied on cash donations—tithes, offerings, and gifts from members—to fund their missions and sustain operations. However, in today's increasingly diverse financial landscape, many donors are choosing to contribute in the form of non-cash assets such as stocks, real estate, or even valuable collectibles. The question arises: should churches accept these forms of donations, and if so, what are the potential benefits and challenges associated with them?

This blog explores the pros and cons of accepting non-cash donations, such as stocks, real estate, or other assets, and provides guidance on how churches can navigate this complex issue.

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1. The Case for Accepting Non-Cash Donations

Churches have a long history of accepting cash donations, but in recent years, more donors are looking for ways to contribute assets that may be more beneficial for them, as well as for the church. Here's why accepting non-cash donations might be a good idea.

A. Expanded Giving Opportunities

By accepting stocks, real estate, and other assets, churches broaden the scope of potential donors. People who may not have a lot of disposable income but hold valuable assets might prefer to donate these assets rather than cash.

• Real Estate: Real estate donations can come from individuals or businesses who no longer need a property. This could be a vacant land, an investment property, or even vacation homes.

• Stocks and Securities: For those who have significant investments in stocks or bonds, donating appreciated assets like shares of stock can offer a more favorable tax outcome for the donor.

By accepting these non-cash donations, a church opens the door to larger gifts and a more diverse group of potential donors.

B. Tax Benefits for Donors

When donors give appreciated assets like stocks or real estate, they can benefit from substantial tax advantages. If the donor has owned the asset for a longer period and it has appreciated in value, they may be able to:

• Avoid capital gains taxes on the appreciation of the asset by donating it directly to the church. This is particularly advantageous for stock donations and real estate.

• Deduct the full market value of the asset on their tax return, rather than just the purchase price.

This tax incentive makes donating appreciated assets an attractive option for some individuals, encouraging higher-value gifts. Donors who are interested in giving but want to minimize their tax liability may see this as an optimal strategy.

C. Potential for Significant Assets

Certain types of non-cash donations can be highly valuable. For instance:

• A donated property could potentially become a source of income if the church chooses to sell or develop it.

• Stocks in companies that have appreciated significantly in value can contribute a large amount of resources to the church, potentially funding major projects or initiatives.

For churches that are looking for long-term sustainability or the ability to fund large initiatives, accepting non-cash donations could provide a strategic avenue to acquire assets that can appreciate over time.

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2. The Challenges of Accepting Non-Cash Donations

While the benefits of accepting non-cash donations are clear, churches also need to be mindful of several challenges and risks that come with accepting stocks, real estate, and other non-cash assets.

A. Complexity of Valuation

One of the biggest challenges when accepting non-cash assets is determining their value.

• Stocks are typically easy to value because they have a market price, but determining the value of real estate or other non-liquid assets can be much more difficult. Real estate, for example, might require professional appraisals to ensure that the church is receiving a fair and accurate valuation.

• Appraisal Costs: Some forms of assets, such as artwork or collectibles, might require specialized appraisers, which could incur additional costs.

If the church accepts an asset without proper valuation, it could lead to mismanagement or the perception that the church did not get a fair deal. The church will need to establish protocols for proper asset evaluation before accepting non-cash donations.

B. Legal and Tax Considerations

Accepting non-cash donations, especially real estate and securities, can trigger complex legal and tax issues for the church. Some key considerations include:

• Compliance with Tax Laws: Churches must ensure they are adhering to tax laws regarding charitable donations. For example, IRS regulations in many countries outline the paperwork needed for donors to claim a deduction for non-cash gifts. Churches must ensure they provide the correct receipts or acknowledgment letters for these gifts, which could require additional administrative work.

• Capital Gains Tax: While donors can generally avoid paying capital gains taxes when they donate appreciated assets directly to a church, churches themselves must be aware of whether there are any tax obligations upon receiving the donation, particularly when they decide to sell the assets.

• Property Maintenance: Accepting real estate comes with ongoing responsibilities such as property taxes, maintenance, and insurance. Churches should have a clear understanding of the costs involved in holding onto and managing non-cash donations like property. This could strain resources if not carefully planned for.

C. Liquidity Issues

Unlike cash donations, non-cash assets such as stocks or real estate are illiquid, meaning they cannot be easily converted into cash without incurring additional costs or waiting for a sale.

• Real Estate: If the church receives real estate, it may be difficult to quickly sell the property to fund urgent projects. The church must be prepared to manage the long-term holding of the property or consider selling it to free up resources.

• Stocks: If the church holds onto donated stocks, it may need to wait for an opportune time to sell the shares, which introduces the risk of market volatility.

For churches relying on steady cash flow to meet operational expenses or fund ministry programs, these liquidity issues could present challenges.

D. Ethical and Practical Considerations

Some churches may have ethical considerations around accepting certain types of assets, particularly when the assets come from sources that do not align with the church’s values or mission.

For example, a church might face a dilemma if it is offered stock in a company whose business practices conflict with the church’s beliefs (e.g., a company that engages in activities that contradict Christian teachings).

Additionally, churches must ensure they have the capacity and resources to manage these types of donations effectively. For example, if the church is receiving a large property donation, it must have a clear plan for maintaining or liquidating the property in a way that benefits the church’s mission.

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3. Best Practices for Accepting Non-Cash Donations

If a church decides to accept donations in the form of stocks, real estate, or other non-cash assets, it should adopt certain best practices to mitigate the challenges and maximize the benefits.

A. Establish Clear Guidelines

Church leadership should create clear guidelines for accepting non-cash donations. These guidelines should cover:

• Types of assets accepted: Specify which types of non-cash donations are acceptable (e.g., stocks, bonds, real estate, artwork, etc.).

• Valuation process: Establish how assets will be valued, including the need for professional appraisals when appropriate.

• Sale of assets: Define when and how assets should be liquidated (i.e., sold) to ensure the church can access funds in a timely manner.

B. Seek Professional Advice

It’s essential for churches to consult with professionals, such as accountants, attorneys, and financial advisors, who can help navigate the complexities of accepting non-cash donations. These experts can guide the church on:

• Tax implications

• Appraisal requirements

• Legal considerations

C. Communicate Clearly with Donors

Church leaders should make sure that donors understand the process for donating non-cash assets and the benefits they can receive, including tax advantages. Transparency is key to ensuring that donors feel comfortable making these types of gifts.

D. Implement a Donation Acceptance Policy

Developing a donation acceptance policy that outlines the process for handling non-cash gifts is important. The policy should detail the steps that need to be followed from initial donation through liquidation or use, as well as approval processes and guidelines for asset management.

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Conclusion

Accepting non-cash donations such as stocks, real estate, or other assets can provide churches with significant resources to further their mission and ministries. These donations can also offer donors valuable tax benefits and opportunities to contribute in ways that align with their financial portfolios.

However, accepting such donations comes with challenges, including complex valuation processes, legal and tax considerations, and potential liquidity issues. Churches should carefully weigh these considerations and adopt best practices to ensure that the acceptance of non-cash assets is both beneficial and manageable.

By establishing clear policies, seeking professional advice, and maintaining transparency, churches can effectively manage non-cash donations and use them to advance their mission in a way that builds trust with their congregation and supports long-term sustainability.