Four Ways for Giving Real Estate
Interest rates remain low, and across the country the housing market is strong. Many people are discovering that their real estate holdings are more valuable than ever. Regardless of how they feel about stocks and bonds they may own, their property values are rising.
This presents an opportunity for using raw land, a commercial building, or even a vacation property to fulfill a philanthropic legacy. For example, taxable property that has appreciated in value may be given without incurring tax on the capital gain. As a result, the value of the gift can be significantly more than it might be if the property were first sold and the after-tax proceeds then given to charity.
If you have appreciated real estate – especially property you find you are no longer using – consider the benefits of using that asset to make a charitable gift. There are any number of options to consider, and four possibilities may make a lot of sense today.
1. Give the Entire Property
A qualified charitable organization can sell real estate gifts without incurring tax on the appreciation. For example, Mr. and Mrs. Kahn bought a piece of land in 1995 for $10,000 and it was recently appraised for $50,000. If they sell it at that price, they could have to pay up to $9,520 federal tax on the $40,000 gain. However, if they give the deed to a qualified charity, they will avoid the tax and the hassle of selling. They will also receive an income tax charitable deduction for the appraised value of the land.
2. Give a Portion of the Property
Many people cannot afford to give an entire parcel of real estate but they are willing to give part of it. One good solution is to give their favorite charity an undivided interest in the property. For example, by giving a 50 percent interest to a charitable entity, each party – the donor and the charity – will ultimately receive one-half of the sale proceeds. A bonus for the donor is that he or she can use the income tax charitable deduction to help offset any taxes due on the other portion.
3. Give the Property and Obtain Income
Some real estate owners want added income, yet they also want to make an important charitable gift. One possibility is to use their property to establish a charitable trust. The trustee then sells the property and reinvests the proceeds in a balanced investment portfolio that delivers income to the donors for as long as they live. After they are gone, whatever remains in the trust goes to the charity. There are multiple advantages to this arrangement. It can work exceptionally well if you have appreciated property, need additional income, and want to help your favorite charity in the process.
4. Give Your Home and Continue to Live There
Some donors will give their residence as an important gift, but they want to stay in it. A life estate gift can be the answer. It simply means that they give the residence (which could be a vacation home) to a charity, retain the right to live in the home for life, and obtain an immediate income tax charitable deduction. This arrangement also removes the residence from the estate and relieves them or their executor from having to sell the house later.
I would be pleased to talk with you about your charitable interests and planning options confidentially and without any obligation. Call me at 614-338-2365 or email firstname.lastname@example.org.
Article appears as originally published in the Ohio Jewish Chronicle, Thursday June 29, 2017.
Jackie Jacobs is the Chief Executive Officer of the Columbus Jewish Foundation, the Central Ohio Jewish community’s planned giving and endowment headquarters.