How You Benefit From Giving Real Estate

If you’ve owned your home or other real estate for a long time, no doubt it has significantly increased in value. What happens if you sell the property? Capital gains tax doesn’t come only from the sale of appreciated securities like stocks, bonds and mutual funds. It applies to all property that has increased in value, including real estate.

Your personal residence, farm, vacation home, commercial property or parcel of undeveloped land can be a tax-wise donation. Why? Because a present or future gift offers you the potential for valuable savings on income tax (from a charitable deduction plus capital gains tax avoidance), as well as on estate tax. You can also free yourself of burdensome management and the problems involved in selling the property or leaving it to estate liquidation.

Donating vs. Selling
Congress has passed new rules lowering taxes when you sell a home that has appreciated in value. You can now eliminate the first $250,000 of gain ($500,000 if you are married) on the sale of your home (and only your home) if it has been your principal residence for two of the last five years. The capital gains tax avoidance doesn’t apply for any real estate other than your primary residence.

On the other hand, you avoid capital gains tax on donations of any type of real estate. If you’d like to help secure the future of the Oakland Museum of California, your property opens the door to a unique giving opportunity by giving you the option to donate the property to the museum, either now or when you no longer need it.

Does Your Home Need a New Home?
Perhaps you’re ready to move into a smaller house, a condominium or a retirement home. Or you have a vacation home that you no longer use. Maybe you are tired of the responsibilities of commercial real estate ownership. If so, read on for ideas on how to leverage these assets into tax-saving gifts to the museum.

Outright gift: The home you’re leaving, or any other real estate, can be given to the museum outright. If you have owned it for more than a year, you can receive a tax deduction for the full current market value (rather than your lowest cost basis), and you avoid capital gains tax on the appreciation. Your gift is deductible up to 30% of your adjusted gross income with a five-year carryover allowed for any excess.

Life Income Trust: Another alternative is to transfer your unmortgaged home or other unmortgaged real estate to a life income trust (also known as a charitable remainder trust). This can be a productive gift for both you and the museum, securing a life income for you and a survivor, such as your spouse, and providing us with much-needed assistance when the remainder comes to the museum at the termination of the trust. It works this way: once the property has been transferred to the trust, the proceeds in income-producing securities, which become the source for the income payment to you and any other recipient you name.

Retention of your Home: You may want to continue living in your home for your lifetime and, perhaps, with life use of your surviving spouse, too. You can still make the gift, deeding the property to us subject to your specification about occupancy. You receive a sizable, current income tax deduction based on the value of the property and your age and, if applicable, your spouse’s age. This type of gift is known as a retained life estate.

Bargain Sale Tax Benefits: You can sell long-term appreciated real estate to us for less than its value, subject to our consent. This transaction is part gift and part sale. You receive a charitable deduction for the difference between the sale price and the higher fair market value.

Do Give Away the Farm!
A retained life estate isn’t limited to your main personal residence. If you own more than one home and one of them sits idle or you prefer not to retain ownership of one of them, or if you have a little-used vacation home or farm, you have a potential gift of real estate. The gift can be made outright, with retained use or become the assets of a life income trust. If you’re considering giving a farm, the gift of the acreage may include or exclude the farmhouse.

When considering strategic plans with your real estate assets, you may find it helpful to complete the Gift Planning Form.

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