Real Estate Gifts

Goal: Avoid capital gains tax on the sale of a home or other real estate.
Benefit: A charitable tax deduction and potential diversification with the possibility of reducing or eliminating capital gains tax.

Depending on the circumstances that are involved, gifts of real estate can be an effective means of planning a gift. Much of the individual wealth in America is invested in real estate. While the first thought often is a home or farm, real estate also can involve a vacation or second home, an apartment or commercial building, a shopping center, or undeveloped land. Often our real estate holdings, be it our house, a second home or investment property, is a significant part of our net worth. Gifts of real estate, therefore, can enable us to make significant contributions.

Each piece of property and its unique circumstances need to be reviewed to determine the suitability of the property as a gift. Generally speaking, a rule of thumb is that an acceptable piece of property is one that can be readily sold. Also, there are many ways to donate property. It can be an outright gift, a retained life estate, or placed in a trust, such as a charitable remainder trust.

In addition to making a significant contribution, there can be other benefits for you: There may be a charitable income tax deduction that would lower your income tax. If your property has appreciated in value since you acquired it, there might be a large capital gain tax that would result if you sold it. By donating the property, you may be able to avoid realizing the capital gains. Depending on your state regulations, you may be able to turn the property into a gift that is structured to provide income for you and other beneficiaries. If the property is your home or farm, you may be able to make a gift of it now and continue to live in it for the rest of your life and receive tax benefits the year of the gift. Learn more by clicking the “Gift of a Life Estate” tab at the end of this artticle. If the contribution from your property exceeds the allowable charitable deduction limits, the deduction may be carried forward for five years. There can be significant advantages to using property as a charitable gift.

In any case, while we discuss some generalities here about donating real estate, if you are considering such a gift to McLeod Health Foundation, please contact us to discuss its suitability and your unique circumstances.

Gift of a Life Estate

Goal: Give your personal residence or farm, but retain life use.
Benefit: tax advantages plus use of the property for your lifetime.

A retained life estate is a gift plan defined by federal tax law allowing the donation of a personal residence (to include a vacation home) or farm with the donor retaining the right to life enjoyment. A life estate may be retained for one or more lives or it may be retained for a term of years. All routine expenses - maintenance fees, property taxes, repairs, etc. - are the responsibility of the donor. The donor receives income tax benefits in the year of the gift (the property is irrevocably deeded to the charity) and estate tax benefits.

For the purposes of taxes, the property within a retained life estate is divided into two parts:

  • 1. The "life estate value" of the donor's retained right to live on (occupy) the property for both the donor's or the donor's and his or her spouse's actuarial life expectancy. This is a calculation for taxes and not a limitation of the time the donor and/or spouse can occupy the property.
  • 2. The "gift value" is the difference between the market value (an appraisal at the time of the gift will be necessary) of the property and the calculated life estate value. This determines the amount of the charitable income tax deduction that would apply in the year of the gift (it is subject to appropriate carry-forward rules if necessary).

At the time of death of the final owner of the life estate, the property passes into the possession of the charity.

Should the donor decide to sell the property that is subject to a life estate, that can be accomplished in partnership with the charity. At the time of the sale, the remaining value of the life estate is calculated and the proceeds from the sale are dived proportionately between the charity and the donor. The donor may also decide to gift the remaining value of the life estate to the charity and, in so doing, would receive a charitable tax deduction for the value of the life estate at the time of the gift.

A retained life estate allows the donor to maintain his and/or her lifestyle and at the same time makes it possible for the donor to make a significant gift to a charity.

For more information or a confidential discussion of your charitable options, please
email or call, Elizabeth Jones, at (843) 777-2694.

Please note, individual financial circumstances will vary. The information on this site does not constitute legal or tax advice. Donor stories and photographs are for purposes of illustration only. As with all tax and estate planning, please consult your attorney or estate specialist. You may also contact a member of the Professional Advisory Council. All material is copyrighted and is for viewing purposes only. Use of this site signifies your agreement with the terms of use. The content in this Legacy Giving section has been developed for McLeod Health Foundation and is owned by Future Focus.