Gifts of Appreciated Property

The purchase of a home for personal residence or rental property are reasons for acquiring real estate. As the years pass, many people discover they own significant amounts of property for income or investment purposes. A gift of appreciated real estate can be an excellent method for meeting planning objectives. An appraisal is required on all gifts of real estate in excess of $5,000 in value.

An individual may be able to give more to charitable causes through the transfer of real estate rather than through an outright gift of cash.

Mrs. Jameson would like to make a significant gift to Long Beach Rescue Mission Foundation. Her first thought was to sell a piece of property and give the proceeds to LBRM-Fdn.

After discussing the options with LBRM-Fdn’s estate planning representative, she discovered she could make a larger gift by giving them the property.

Additionally, by giving the property, Mrs. Jameson will also benefit by receiving a larger income tax charitable deduction.

Example: Sale vs. Gift

A gift of real estate used to fund a charitable remainder unitrust results in the following benefits for the donor:

• No capital gains tax on the transfer.
• Life income for the donor and spouse.
• Immediate charitable income tax deduction.
• Estate tax charitable deduction.

Mr. Winslow has a rental house worth $100,000. He has owned the property for some time and it is fully depreciated. The rental income of $7,200 per year is an important supplement to his pension, yet the expense of upkeep and taxes reduce his net income.

By placing this property in a charitable remainder unitrust with Long Beach Rescue Mission Foundation, Mr. Winslow can receive approximately the same income without the property tax and maintenance expense. He avoids all capital gains tax on the transfer, receives an immediate income tax charitable deduction, and is relieved of management worries.

A personal residence, farm or ranch can be contributed to Long Beach Rescue Mission Foundation using a life estate arrangement. A life estate arrangement can provide an income tax charitable deduction, can avoid probate and can guarantee the property will pass to Long Beach Rescue Mission Foundation at the donor’s death. The donor maintains control over the property throughout his/her lifetime.

Appreciated securities such as stocks, bonds or mutual funds are excellent assets to give if the securities have been held over twelve months, which qualifies them as long-term capital gains property. Gifts of appreciated securities have two tax advantages:

• The donor receives an income tax charitable deduction equal to the current fair market value of the stock or other securities given.
• The donor avoids payment of any capital gains tax.

Appreciated publicly traded stock can be transferred to Long Beach Rescue Mission Foundation as a charitable contribution. The donor can claim the full fair market value of the stock as a charitable deduction on his/her income tax return and avoid all capital gains tax on the gift.

Over a year ago, Mr. and Mrs. Smith purchased 100 shares of X Company when the stock was valued at $3,000. Today, the stock’s fair market value is $10,000.

If the Smiths make a gift of that stock to Long Beach Rescue Mission Foundation, they may deduct the entire fair market value – up to 30 percent of their adjusted gross income. Any unused portion of their deduction can be carried forward up to five years. They will also avoid tax on the $7,000 of capital gain.

Gifts of private—or closely-held—stock have several tax advantages. The donor receives an income tax charitable deduction equal to the full fair market value of the stock. In addition, no capital gains tax is due, allowing the donor more after-tax spendable dollars.

Gifts of closely-held stock can also facilitate the transfer of a larger percentage of ownership to other family members while avoiding gift tax, and reducing estate tax liability. Both the donor and Long Beach Rescue Mission Foundation benefit from this option. Gifts of closely-held stock of $10,000 or more require an appraisal.

Long Beach Rescue Mission Foundation receives a gift of 250 shares of Good Fortune Corporation from Mr. and Mrs. White. Good Fortune Corporation then redeems (buys) the stock from LBRM-Fdn and the stock is retired.

The Whites and/or their family still own 100 percent of the outstanding stock. (Note: Under IRS rules, LBRM-Fdn cannot be required to sell the stock back to Good Fortune Corporation.)

Life insurance is an excellent vehicle for charitable giving because it allows a donor to make a sizable gift without jeopardizing current financial responsibilities. A gift of life insurance can provide a tax deduction, if the donor itemizes.

As time passes, the need for life insurance can change. Protection for a young family and spouse or the financial assurance once needed may not be valid now. Making a charitable gift to Long Beach Rescue Mission Foundation of an existing, paid-up policy is easily accomplished by naming LBRM-Fdn as one of the following:

• Primary beneficiary of the policy.
• Co-Beneficiary, with your present beneficiary.
• Secondary beneficiary, if your primary beneficiary dies.
• LBRM-Fdn can be named as owner and beneficiary of the policy. The donor will receive an income tax charitable deduction equal to the replacement value of the policy (usually a major portion of the cash value).

A significant gift can be made to Long Beach Rescue Mission Foundation by purchasing a new policy on your life and naming LBRM-Fdn as the owner and beneficiary. The amount paid for each premium is tax deductible. Premiums can be paid in installments or in a single payment. (Long Beach Rescue Mission Foundation should sign the application as owner and applicant.)

Mr. Powell has decided to purchase a life insurance policy on himself as a gift to Long Beach Rescue Mission Foundation. Mr. Powell, age 40, buys a $100,000 policy which can be paid annually at $1,700 per year for about seven years, or in a single payment of $9,400. Mr. Powell chooses to pay the single payment.

When Mr. Powell dies, his donation to Long Beach Rescue Mission Foundation will provide at least $100,000 for a single investment of $9,400.