Gifts of Real Estate
–W. K. Kellogg
Why a Gift of Real Estate?
Today, many people own long-term, highly appreciated property. Aside from their principal residence, they may own:
- Second home
- Vacation property
- Office building
- Residential rental properties
- Undeveloped commercial land
- Inherited property
- Investment property such as condos or apartment buildings
In many cases, they are looking for tax-efficient ways to pass along property or convert it into an income stream. These people may want to consider charitable giving options. The Hancock County Community Foundation can help owners unlock the earning potential of their property; save them a bundle on taxes; and, at the same time, help them make a substantial contribution to further charitable work through the establishment of an endowment.
An endowment is a permanently invested fund that produces annual income which can provide grants for scholarships, charitable organizations, worthy causes and institutions…a great way for owners to fulfill their charitable objectives in a very long-term way!
Benefits of Giving Real Estate through a Will or Trust
- Owner transfers real estate to the Hancock County Community Foundation through his or her will or trust simply by designating the property as a bequest
- Gift can qualify for an unlimited estate tax charitable deduction
- The Foundation will provide sample bequest language and work with the owner’s attorney as needed, free of charge
Benefits of Giving Real Estate that can Provide Income
Charitable Remainder Trust (CRT)
- One of the most popular gift planning techniques of today’s donors!
- By funding a CRT with real estate, the owner can postpone or spread out capital gains tax liability
- Every trust is planned and drafted to accomplish the specific objectives of the owner
- The trust invests the proceeds from the sale of real estate in a diversified portfolio of stocks, bonds, and other investments
- The trust will pay an income to the owner and/or others designated by the owner for life or for a term not to exceed 20 years
- Owner receives immediate income tax charitable deduction for the present value of the Foundation’s remainder interest
- Reduces potential estate tax liability by removing the asset from the owner’s estate
- A CRT increases the owner’s annual cash flow
Charitable Gift Annuity (CGA)
- The easiest way to set up a life income plan
- Real estate is transferred directly to the Hancock County Community Foundation in exchange for our commitment to pay the owner a specific annual income
- No trust agreement or other complexities…just the Foundation’s written promise to pay a specified dollar amount
- The present value of the deferred gift to HCCF is deducted as a charitable contribution on the owner’s income tax
- The gift of real estate generally does not give rise to an immediate capital gains tax, even if the gift has substantially appreciated in value
- The gift of real estate can be sold by HCCF without incurring a capital gains tax
- A CGA increases the owner’s annual cash flow
Benefits of Outright Transfers
Outright Gifts of Property to the Hancock County Community Foundation
- Owner can claim an income tax deduction for current fair market value (reduced by mortgage debt)
- Deduction can be claimed in the year of the gift (subject to annual limits on the charitable deduction based on owner’s adjusted gross income)
- Owner has five subsequent years to claim any excess deduction that exceeds deduction limit
- Owner can avoid capital gains tax on a gift of long-term appreciated property (property held for more than one year)
- Donated property is removed from the owner’s estate, thus bypassing potential federal estate tax
- Owner may subdivide property and make an outright gift of one or more parcels
- Owner receives an immediate income tax charitable deduction for the gift
- Owner retains ownership of the land he or she wishes to keep
- Great option when the income tax deduction is greater than the maximum deduction that the owner can claim in the year of the gift
Gift to the Hancock County Community Foundation with a Retained Life Estate Arrangement
- Owner retains the right to live in or use the property for the remainder of his or her lifetime
- Upon death, the property is transferred to the Foundation, avoiding delay and the expense of probate
- A current income tax charitable deduction is allowed for the gift
Important Considerations in Planning Gifts of Real Estate
A gift of real estate requires careful planning. The Hancock County Community Foundation highly recommends the involvement of advisors (attorney, accountant, etc.).
- Outright gifts of real estate should be readily marketable.
- The IRS requires that an owner obtain an appraisal from a qualified appraiser to substantiate the value claimed as the basis for charitable deduction.
- An Environmental Review of property may be required.
Why Owners Should Consider a Gift of Real Estate to the Hancock County Community Foundation
- Endowment: HCCF provides permanent vehicles that will make a lasting difference to an owner’s favorite causes and charitable organizations.
- Flexibility: HCCF is a donor-driven organization. Endowment funds are tailor-made to meet the philanthropic desires of caring citizens.
- Funds may be established in large or small amounts.
- Endowments create a permanent legacy in the community and can bear any name desired…family named funds are very popular.
- Low cost: There is no fee to create a fund and a very low cost to administer the fund.
- HCCF handles all administrative complexities.
- Establishing a fund at the Hancock County Community Foundation is a wonderful way to give back to the community and to help your favorite charities for all time!