Four Options When Giving Real Estate
Real property values have been rising at a time when interest rates have remained low for an extended period. Financial assets have seen market values increase, too. Is it timely to consider making a gift of your real estate?
You may have a vacation property or undeveloped lot that has appreciated in value over the years. Did you intend to use it a lot more when it was purchased than you do now? It can be given to your favorite charity without incurring tax on that appreciation. Once it is sold, the value of your gift can be significantly more than had you sold it and donated after-tax proceeds of the sale.
Either way, your gift qualifies for an income tax charitable deduction but it is typically lower if you sell first. Consider these four possibilities for your appreciated real estate.
1. Give the Entire Property
A qualified charitable organization is able to sell the property without incurring capital gain or the tax it attracts as happens when an individual sells it. For example, a lot purchased for $10,000 in 1990 that appraises for $60,000 today would produce a $50,000 capital gain and a $10,000 tax if sold now. Instead, a gift to charity of that same lot avoids the cost to sell it, avoids the tax on the gain, and for most taxpayers results in a 20 percent higher gift and charitable deduction.
2. Give a Portion of the Property
Imagine that giving the entire lot doesn’t make sense to you, but a smaller gift might. It is possible to give an undivided fractional interest and accomplish similar goals, though to a lesser degree. A gift of an undivided one-half interest in that $60,000 lot today means that both you and the charity will receive half of the sale proceeds when it sells. Today’s charitable deduction will help offset the capital gains taxes due on the portion that you kept.
3. Give the Property, Obtain Income in Return
Some real property has use if contributed to create either a charitable trust. The capital gain may be completely or mostly avoided, much like in the first option. The property when sold allows the charity to reinvest the proceeds (undiminished by taxes) and produce income for the donor. These are some of the advantages worth investigating if increasing income and making a gift are of interest to you.
4. Give the House and Keep Living in It
This is not only possible, it is even popular among those who have discovered its benefits. By deeding the house to charity now, you qualify for a current year’s charitable deduction; yet by simultaneously reserving your right to live in it for life, you hold on to all incidents of ownership for as long as you live. The residence is effectively removed from the estate and will not be subject to future tax or settlement costs.
Feel free to contact me at no obligation at 614-338-2365 or jjacobs @tcjf.org.
Article appears as originally published in the Ohio Jewish Chronicle Wednesday, November 23, 2016.
Jackie Jacobs is the Chief Executive Officer of the Columbus Jewish Foundation, the Central Ohio Jewish community’s planned giving and endowment headquarters.