Support a cause that's important to you with a charitable gift and help our organization fulfill its mission for many years and generations to come
Example 1Related Parties
Peggy, age 75, currently owns a building worth $2 million that she acquired nine months ago through a Sec. 1031 exchange. Because she has been trading up over the years, her basis in the property is quite low. Peggy has owned the building for nine months and treated the building as investment property, including on her latest income tax return. She recently learned of the benefits of a Charitable Remainder Unitrust (CRUT) from a local charity she supports and wonders if she can transfer the property now to avoid capital gains on the sale. While it is July and Peggy does not meet the suggested one-year holding period, there is no evidence of an "intent to sell" at the time of the acquisition of the replacement Sec. 1031 property nine months prior. Based upon this information and the advice of her attorney, Peggy decides to wait until November to transfer the property to a CRUT and use the lifetime income payments to travel.
Rich, age 81, owns a commercial building that leases office space. He acquired the building 15 months ago for $1 million from his son through a Sec.1031 exchange. The building is in an up-and-coming area. Rich has made some improvements to the property and found long-term tenants. Even though he has not listed the property for sale, a potential buyer approached him with a $2 million offer. Although he had not planned to sell, this offer is too good for Rich to pass up. Because he received the property from his son, Sec. 1031 imposes a two-year holding period. Thus, he is nine months short of the two-year holding requirement for related parties. Any disposition – by either sale or gift – before the two-year period would trigger Rich's deferred gain. None of the exceptions to the two-year holding period apply to Rich's situation. Because he does not want to trigger capital gains taxes, Rich decides to pass on the offer and keep his commercial building.
Betsy purchased a rental duplex six years ago for $198,000 plus $2,000 in closing costs. She has depreciated $6,000 per year on the property. Her depreciated cost basis is now $164,000 ($200,000 - $36,000). This year, she decided to sell the duplex for $264,000 and purchase a larger complex down the road for $400,000 with cash she received from a recent inheritance. The difference in basis in the replacement property and her realized amount in the sale ($400,000 - $264,000) is $136,000; this amount is added to the depreciated basis of the original property ($136,000 + $164,000) for a total of $300,000. Thus, Betsy's new basis is $300,000 and she has deferred taxes on the capital gain from the sale of the duplex.
Ashley is nearing retirement and no longer wants to manage the 12-unit apartment building she purchased through a Sec. 1031 exchange 15 years ago. The building is owned by her single member LLC, Ashley's Apartments, LLC as the sole asset. Her adjusted cost basis is $350,000 and the current value is estimated at $920,000. She has supported many local charities over the years and would like to continue her philanthropic work after she retires. Because real estate values have skyrocketed in her area, selling the property outright will produce a capital gains tax of $135,660 ($570,000 x 23.8%). Ashley decides to donate the property to a DAF. She will get a tax deduction this year for her contribution and may start to recommend charitable distributions.
A charitable gift annuity is a great way you can make a gift to our organization and benefit. You transfer your cash or property to our organization and we promise to make fixed payments to you for life at a rate based on your age.more
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