Gift of Real Estates
Almost any type of real property - a personal residence, a farm, a vacation home, a commercial building, or an undeveloped parcel of land can be the subject of a gift. Gifts of real estate can be made either outright or through one of the methods discussed below.
If the property is long-term capital gain property and given outright, you’ll generally avoid any tax on the gain, reduce your taxable estate by the value of the gift, and receive a charitable contribution deduction for 100 percent of the fair market value of the property.
Your actual income tax savings will depend on your tax bracket. You may deduct the value of the gift, up to 30 percent of your adjusted gross income. Under certain circumstances, however, you can choose to qualify for a 50 percent annual deduction by reducing the value of your gift to its cost basis.
Gifts of Real Estate
A gift of real estate can be an attractive way to make a substantial commitment to the TAPPI Foundation and to realize important tax and income benefits at the same time. You may be able to reduce significantly the amount of income, capital gain and estate taxes you otherwise would have to pay. You also may be able to earn an income from your gift. Finally, the disposal of your property can relieve you of management worries.
Methods of Giving
1. Outright Gift. You deed the property to the TAPPI Foundation. The TAPPI Foundation then would sell it, unless there was a special reason for holding the property. You would benefit from an income tax charitable deduction for the appraised full fair market value of the donated real estate. (Any unused deduction can be utilized in up to five succeeding years.)
2. Gift of Partial Interest. You may deed to the TAPPI Foundation an "undivided fractional interest" in your property, if you are not prepared to dispose of the entire property. The appraised value of the fractional interest is deductible for income tax purposes. Such a gift can be especially useful in providing a deduction to offset a capital gain generated by the subsequent sale of the entire property. Upon the sale, you and the TAPPI Foundation share proportionately in the proceeds.
3. Gift With Retained Life Tenancy. You can deed your home, vacation home or farm to the TAPPI Foundation, and retain the right to use the property for your lifetime (and your spouse’s). You receive an immediate income tax charitable deduction for the interest deeded to the TAPPI Foundation.
4. Life Income Trust. You can transfer your property to a TAPPI Foundation managed trust designed to pay you and/or another beneficiary an income stream for life. The TAPPI Foundation would sell the property and reinvest the proceeds in accordance with your objective. You receive an immediate income tax charitable deduction for a portion of the appraised value of the property. In addition, the TAPPI Foundation can sell your property with no capital gain tax liability. Moreover, you receive investment diversification and professional management.
5. Charitable Lead Trust. You may place income-producing real estate into a charitable lead trust to benefit the TAPPI Foundation, and ultimately your heirs. During the trust terms an income stream would flow to the TAPPI Foundation. At the termination of the trust, the property would pass to your heirs. Such an arrangement can be effectively utilized to transfer property to your heirs at a reduced gift and estate tax cost, particularly if you expect the property value to increase substantially over time. (Typically, this arrangement is appropriate for high net worth individuals with investment real estate worth $500,000 or more.)
6. Bequest. You may make a testamentary gift of real estate under your will or revocable trust, using many of the methods discussed above.
Additional Considerations
Gifts of real estate require a written appraisal and IRS Form 8283 to substantiate your charitable income tax deduction. For your protection, you should not enter into any type of binding agreement to sell the real estate before deeding the property to the TAPPI Foundation. Mortgaged property requires special planning. In many cases, a gift of a fractional interest in the property can avoid any adverse consequences.