Mission Statement:
Provide legal solutions to timeshare owners
in dealing with the difficulties of continued ownership.
IRS 501(c)(3) non-profit corporation

Mortgage Donation


We are an IRS authorized 501(c)3 non-profit organization (NPO) that can and does process donations of mortgages, deeds of trust, and promissory notes secured by real estate to them. (To keep things simple we will call them all mortgages.)

This is a unique situation and NOT advisable to all mortgage owners.
If you are the one who owes the money, you are not the mortgage owner and this does not apply to you.

If you own a mortgage you can dispose of it by:

  1. Release when paid in full
  2. Sale (usually at a discount)
  3. Exchange for other property
  4. Release in lieu of foreclosure
  5. Gift to another party
  6. Donate the mortgage to a charity
  7. Write it off as a bad debt
  8. Abandonment

We are going to address ONLY the last three where we feel if you donate a mortgage, it's the best option for you. If it's a non-paying asset consider donating you mortgage versus option 7 or 8.

IRS Timeshare Donation Regulations     IRS Mortgage Donation Regulations     Submit the online form

First, Abandonment is easiest. Just trash it. You get nothing at all in return.

Second, write it off as a bad debt will get you some cash back but it is lengthy and complicated. You can write off a maximum of $3,000 per year until the total is written off as a bad debt. A $60,000 mortgage will take 20 years to write off. You will get a tax savings or return (Uncle Sam paying you for the loss) based on the current tax bracket you're in each year so long as you continue to file for the bad debt write off. If you're in a 24% for the next 5 years and then retire to a 12% tax bracket you get paid $720 for 5 years and then $360 for the next 15 years.

Third, if you donate your mortgage you'll get the same cash back as option 7 but much faster. The IRS rule says between 20% and 50% of your adjusted gross income can be a donation deduction. If your adjusted gross income is $60,000 you can write off up to $30,000 for two years. At 24% on $30,000 the IRS pays you $7,200 each year for 9 years as an incentive to donate your mortgage and then you're done. There is a question answered below of appraised value if you claim more than $5,000 donation credit.

Timing can be an issue to your decision. It is a good idea to do the donation and take the credit in a year of higher income. Once done, if you change to a lower tax bracket (think retirement) the amount you can write off each year is determined by that current year's tax bracket you are in. Also, if the mortgage is a junior mortgage (there is a 1st mortgage and/or unpaid taxes on the property) and the property is in the foreclosure process, the day foreclosure completes, that junior mortgage is gone as if it never existed. However, if the date of filing at the county recorder's office for new ownership is done the day before, you get the full benefits of the donation process regardless of what happens the next day. So processing speed can be an issue.

IRS Timeshare Donation Regulations     IRS Mortgage Donation Regulations     Submit the online form

There are two catches to donating a mortgage.

  • First, will a charity accept your mortgage donation?

Not if it's worthless, uncollectable or about to disappear in a Primary or Tax lien foreclosure.

  • Second, will the IRS ask for an appraisal on the mortgage donation?

A charity accepts mortgage donations they can turn into cash. If they can't, they won't accept the mortgage donation. After all, if you can't, why would you think they can? If they do accept the mortgage donation you have to worry about the Three Year Rule. The IRS says that if the charity ". . . within three years sells, exchanges, or disposes of the property, the organization must file Form 8282, Donee Information Return." within 125 days or the charity faces penalties. This form notifies the IRS that they should expect an amended return from you to reduce your deduction to what cash was actually received for the mortgage donation. If they give you a $60,000 mortgage donation credit and can't collect a dime so they sell it to a speculator for $100 you have to change your mortgage donation deduction downward and pay back any taxes you had saved based on it. Make sure you know what the charity will do when you donate a mortgage.

The second concern is that the IRS states that the charity can give you credit for any amount, but it's up to you to claim the amount of the mortgage deduction. You can ask for and receive a donation credit of $60,000, but if you claim more than $5,000 the IRS can ask you for an appraisal from a professional they will accept (CPA, banker, investment broker, etc. that is authorized to deal with mortgages, trust deeds, promissory notes, stocks, bonds, etc.). (see IRS Regulations)That appraiser is required to make a valuation based on the sale price of your specific mortgage if it is sold, exchanged or disposed of. If you donate your mortgage and it's NOT later transferred the appraisal must be based on similar instruments actually sold or disposed of in an open market situation.

It's up to the appraiser to find his or her own comparables. The appraiser will ask but you don’t have to show any payment history to the appraiser. All you have to do is give the appraiser a copy of the original mortgage document, not any specific payment history. If asked simply state you want an appraisal based on actual sold mortgages, and not based on future collection assumptions. If the charity gives more than the $5,000 donation credit and you use their valuation to deduct more than the $5,000 they are not held liable. You are the one required to get an IRS Qualified Appraisal for more than the $5,000.

Here’s how to deal with this issue. It’s up to you what you deduct. If you believe a sound, stable viable debt instrument similar to yours would be well worth more than the $5,000 limit, have an appraiser do their thing and take that amount as the actual deduction. For example, the appraiser says 5 similar mortgages close to $60,000 with the same interest rate and terms sold for an average of $52,000. Claim $52,000 as your mortgage donation deduction. You’ll have the appraisal when the IRS asks for it.

On the other hand, if you don't feel you can get an appraisal for more than the $5,000, do nothing, ignore what the charity gave as a donation credit, and only take the $5,000 donation credit the IRS allows without an appraisal. You get that with no questions asked and don't have to "prove" any actual worth.

To place a value on your decision take the tax bracket you’re in and multiply it by $5,000. This is how many dollars the IRS will return to you or credit you on your taxes without any questions at all.



For larger face values, compare how much you’ll get back over time. First, divide the face value of the mortgage by $3,000 for the normal number of years it will take as a simple bad debt write-off. Next, divide the face value by 30% of your adjusted gross income for the number of years it will take to write off the bad debt if you donate it. This will show you how long each will take to complete. The amount you get is always based on the tax bracket you’re in so the number of dollars is not as important as how fast it’s completed.

Ask yourself this, "Is it better to get a lot more money in a short time or
take up to ten times as long to try to squeeze every possible dime out of it?"

IRS Timeshare Donation Regulations     IRS Mortgage Donation Regulations     Submit the online form

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Victims Relief, Inc. has no magic ability to convert a worthless noncollectable asset into cash. It's worthless to them. However, their service can be worth thousands of dollars to you. The fee for processing is $1,000. This will be placed with an escrow company for return to you if we fail to complete the paperwork. Once completed all IRS documents will be provided to the donor.