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Gifts of Real Estate
Real estate can be used to make a meaningful gift to the College and still provide lifetime benefits to the donor. Many people own real estate that has increased in value several times over the original purchase price. This gain, when realized in a sale, is currently taxed at a rate of 20% by the federal government, plus additional taxes in some states. If the real estate is not used as a primary residence, it does not qualify for the one-time exemption from capital gains tax for owners over the age of 55.
Ways to give Gifts of Real Estate:
Real estate that has increased in value can provide a double tax benefit as an outright gift. First, the donor receives a charitable income tax deduction for the full fair market value of the property, not just the purchase price. Secondly, because the property is donated and not sold, all capital gains tax is avoided. The donor also avoids future property taxes and annual maintenance expenses.
Depreciated Real Estate
If the current value of the real estate is less than the original cost to the donor, it can still be used as a gift. In this case, the donor may sell the property and realize the loss on the sale. The loss may be used to offset future gains and reduce taxes. The cash proceeds from the sale can be given to the College, allowing the donor to receive a charitable tax deduction equal to the gift value. If the donor does not want to incur the costs and delays associated with selling, he/she may give the real estate directly and take the full market value as a deduction. In this case, no loss is available to reduce taxes.
Funding a Life Income Agreement
Some donors want to make a gift, but require income from the real estate. This is possible by using the real estate to fund a charitable remainder trust. The trust receives the property title, sells the property, paying no capital gains tax, and reinvests the proceeds. The income produced is paid to the donor and/or another beneficiary. Capital gains tax is avoided and the donor receives a charitable tax deduction for the remainder of the gift value as determined by life expectancy and government tables. Probate costs and estate taxes can also be reduced with this method of giving.
Gift of Residence While Retaining the Right to Occupy
Some donors choose to donate their principal residence while retaining the right to continue living there. If the property is a primary residence, vacation home, or farm, it can be given to the College in an irrevocable life estate agreement. The donor receives a tax deduction for the remainder value of the gift at the time of the gift. The donor retains the rights and responsibilities of a property owner throughout his/her lifetime. This type of gift often appeals to donors over the age of 65.