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
Andrew, 77, has been asked by his alma mater to make a donation. He owns development land on the outskirts of town that he obtained in a Sec. 1031 exchange. There is no debt on the property, and it is valued at $320,000. Andrew thinks it would be nice to transfer it to a charitable gift annuity so he can bypass part of his capital gains and receive a monthly payment. The university was interested but had concerns related to the property's marketability. In addition, the university would have to pay for insurance, taxes and selling costs that could reach 8%. As a result, the university offered a CGA funding amount of $272,000, 85% of the appraised value. Pursuant to the CGA agreement, Andrew will receive a 7% annuity, or $19,040 each year. Andrew receives a charitable deduction for the CGA of $123,490. He also receives an additional $48,000 deduction for the outright gift, which is the difference between the qualified appraisal value and CGA funding value. The charity sold the property several months later for $310,000, net of costs. Andrew is very pleased that he received a large charitable deduction, bypassed capital gains and receives income while making a gift to his alma mater.
Example 6To prevent self-dealing with split interest transactions, it is suggested that certain "safety steps" be taken. For example, it would be advisable for the FLIP CRUT trustee or an independent trustee to be trustee of a revocable trust holding the interest retained by the donor and handle the sale of both portions of the property. The donor also should not prearrange a sale on behalf of the trustee. Additionally, the CRT assets must not be sold or leased back to a disqualified person.
Rebecca has owned and operated a successful restaurant for many years. She would like to scale back her involvement in the business. Rebecca purchased the restaurant building many years ago through a Sec. 1031 exchange. Because property values are skyrocketing in the area, she would like to use the property to support her favorite charitable organizations. Her advisor explains that the best strategy is to donate 55% of the restaurant building to a FLIP unitrust. By selling part of the building inside the unitrust, Rebecca will save the capital gains tax that would otherwise be payable on the gain. She will also receive a charitable income tax deduction and trust income for her lifetime. Once the real estate is sold, the capital gains will be invested primarily in stocks. Thus, most of the trust's payouts will be dividends or long-term capital gain taxable at Rebecca's capital gains rate of 18.8%. Rebecca sells her 45% of the building when the charity sells the 55%.
Mary, age 77, plans to donate her Sec. 1031 property to charity. She purchased the property several years ago for $600,000 and has taken $200,000 in straight-line depreciation. The property is now valued at $1 million with an adjusted basis of $400,000. Mary would like to get cash from the property while minimizing her tax liability. If Mary sells the property to a charity at 50% of the fair market value, she receives a charitable deduction of $500,000 based on the fair market value of the 50%. At her 37% tax rate, she will have income tax savings of $185,000, and bypass capital gain with her gift.
Mary would also receive $500,000 in proceeds from the sale portion. Mary will owe long-term capital gain tax based on the $200,000 difference between the pro-rata original cost basis and the sales price ($200,000 x 23.8% = $47,600). The $100,000 gain attributed to straight-line depreciation is subject to tax at a maximum rate of 25% plus the 3.8% Medicare tax ($100,000 x 28.8% = $28,800). Thus, she will have a total tax bill of $76,400 ($47,600 + $28,800). Mary's charitable income tax savings of $185,000 will more than offset the tax owed. In total, Mary can sell her property tax-free and retain $500,000 in cash proceeds from the sale.
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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