D25. Our charity received a gift of mortgaged property. In what amount should we make out the official donation receipt?

D25. Our charity received a gift of mortgaged property. In what amount should we make out the official donation receipt?


Short answer

In order to determine the value of mortgaged property, your charity will have to consider all relevant factors, including market prices, the terms and conditions of the mortgage, and the amount and conditions of any other charges on the property.

In order to determine the eligible amount, it will be necessary to value the mortgage. Accurate valuation of a mortgage may involve examining the terms and conditions of the arrangement and not just calculating the outstanding principal. To do this, you may wish to hire an expert in the area.

Example

  • A house is transferred to a charity. The only advantage given by the charity is the assumption of the mortgage. The fair market value of the house is $575,000. The amount of the mortgage being assumed by the charity is $124,000.

  • If the terms and conditions of the mortgage were in line with the current market, the eligible amount would be $451,000 ($575,000 – $124,000 = $451,000).

  • The terms and conditions of the mortgage could be unfavourable, however. For example, high interest rates or high penalties for transfer might result in the charity having to pay a third party $150,000 to assume the mortgage. In such a case, the eligible amount would be $425,000 ($575,000 – $150,000 = $425,000).

Note: If any other advantage were being given to the charity, the amount of that advantage would also have to be considered when determining the eligible amount.