Connie Maxwell Children's Home

Providing A Future For The Children Of Tomorrow

Giving Real Estate and other property

When considering ways to make charitable gifts, many have discovered that giving real estate can provide special benefits for both the donor and the recipient. Whether property has increased or decreased in value, real estate can be a practical and beneficial gift.

If you own a home or other property you no longer wish to occupy or manage and you would like to make a charitable gift, you may find that a gift of real property can be a very efficient way to use your property to meet both goals. If you sell real estate you have owned for several years, it is likely that you will be faced with a sizable capital gains tax, especially if the property is not your residence. Through an outright gift of such property, a double tax savings is possible. First, in most cases you will receive a charitable income tax deduction for the full value of the property - a savings of as much as 40% or more of the property's value. In addition, you will not be liable for capital gains tax on the transfer since the property was given instead of sold.

Conversely, if you own property that has decreased in value, a different strategy could provide similar benefits. In this case, a gift of the property outright will entitle you to a deduction for only the fair market value of the property - less than what you paid for it. It would be much better to sell the property first, then give the proceeds to charity. In this way, you establish a capital loss that you may be able to deduct on your taxes, as well as a charitable deduction for the amount of the cash gift.

There are two other unique but significant ways to give real property. One is through a Life Estate agreement. Under this plan, you give the property to charity while retaining the right to reside or use the property for life. A tax deduction is allowed for the value of the eventual charitable gift in the year the gift is arranged. This type of gift is generally most attractive to people 65 or older.

The second way is to use the property to fund a Life Income type of gift, i.e. charitable gift annuity or charitable remainder trust (also discussed on this web site). It is possible to avoid capital gains tax on the increase in value of the property as well as enjoy a current income tax deduction for the value of the gift while simultaneously removing taxable assets from your estate.

If you are considering a charitable gift in the form of real estate, it is important to choose property that meets certain guidelines:

• The property should be readily salable, especially if you anticipate making the gift in the form of a life income arrangement.
• The property's appraised value must equal the amount of the anticipated gift. Federal regulations require qualified appraisals of donated property for which a deduction of more than $5,000 is claimed, in most cases.
• If a property is mortgaged, tax and other benefits may still be obtained, but special attention should be paid to the manner in which the property is given.