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Advising Your Clients on Philanthropy: Charitable Contribution of Personal Residences

by Stephen C. Lande on Categories: philanthropy

Advising Your Clients on Philanthropy: Charitable Contribution of Personal Residences

Will Rogers once said, “Don’t wait to buy real estate, buy real estate and wait.”  More than three in five Americans own their own home, and a significant subset of them also own second homes in sunny climes like South Florida.  With as much as a quarter or more of their assets tied up in real estate, in one form or another, the charitable giving possibilities for your philanthropic clients certainly merit consideration. This article will discuss the charitable contribution of personal residences – homes, second homes or condominiums. For the sake of this discussion, we’ll assume the property hasn’t been depreciated, is owned free and clear, and doesn’t present any environmental concerns.

Of course any such property held for more than a year qualifies for a charitable income tax deduction at its current fair market value of up to 30 percent of the donor’s adjusted gross income in the year of the gift. Tax on any capital gain is also avoided, and any unused deduction may be carried forward for up to five additional years. Note that the charitable income tax deduction for the same contribution to a private foundation would be limited to the donor’s cost basis. Since this would be a gift of a non-cash asset with a valued in excess of $5,000, a qualified appraisal (as defined by the IRS) would be required to substantiate the deduction.

Gifts of real estate can have tremendous utility for your clients. The most obvious use of real estate for philanthropy is the outright contribution.  Many charities are willing to accept contributions of appreciated real estate, sell the property and apply the proceeds of sale to major or capital commitments, endowments or even donor-advised funds. Your clients may find that funding their philanthropy in this manner may streamline their planning.  A philanthropic couple who have lived in their home for many years, raised their family, seen the home appreciate in value dramatically, and now decide to relocate or downsize may see significant advantage in contributing the property directly to charity.

Real estate can also be used to fund charitable remainder trusts. A charitable remainder trust is an irrevocable trust that provides an income stream to the donors or others for life or a term of up to 20 years based on the value of the property contributed to it. At the end of the donors’ lives or the term of years, the remaining balance in the trust passes to charity. Real estate and any appreciated property contributed to a charitable remainder trust can be sold by the trust free of tax, including capital gains tax.  In addition to the income stream, which, with the capital gain untaxed, can be significant, the donors also receive a charitable income tax deduction for the value of the portion of their gift that will eventually go to charity as determined by IRS formula. With a charitable reminder trust, even the fact that real estate may not be readily marketable may become manageable.

In addition to outright contributions, real estate is somewhat unique in that partial interests can be donated. This feature allows the donor to transfer property to charity now but retain ownership of the property for life or a term of years. Suppose your clients have a getaway condo vacation home in Naples that they have owned for many years.  Their children live elsewhere and have no interest in the property, so the clients are considering donating the condo to charity at death. They could enter into a formal agreement with a charity to make the gift now, retain the right to use the property during their lifetime in accordance with the agreement, and receive a present charitable income tax deduction for the value of the remainder interest as determined by IRS formula.  While they would agree to maintain the property as they no doubt would have done anyway, their use and enjoyment of it would be otherwise unaffected.  After a few years they could even decide to turn the property over to the charity early and receive an additional charitable income tax deduction.

With any gift of real estate, you can be sure the charity will be looking out for environmental, valuation and marketability issues. You must also remember that gifts of appreciated real estate, like any other charitable contribution for which a charitable income tax deduction will be sought, must be irrevocable. Few charities have the expertise in-house to deal with gifts of real estate but most charities that will accept gifts of real estate have a set of gift acceptance policies in place to guide them through the process. They may also have a volunteer committee to oversee the acceptance and disposition of these gifts and will certainly seek the advice of skilled professionals as necessary.

The resources of The Foundation of the Greater Miami Jewish Federation are available to you and your clients, in complete confidence and without obligation, as you consider these and the many other possibilities for the charitable contribution of real estate. These gifts may offer your clients the opportunity to fulfill their charitable objectives in a tax-wise manner, inspire and engage the next generation of their families and create a lasting legacy. For more information, please contact Foundation Director Steve Lande at slande@gmjf.org, or at 786-866-8623, or consult JewishMiami.org.

Steve Lande is director of The Foundation of the Greater Miami Jewish Federation and serves as the Greater Miami Jewish Federation’s Authorized House Counsel. Prior to joining the Greater Miami Jewish Federation, he directed the Jewish Federation of Greater Pittsburgh’s endowment program for 18 years. A native of Iowa, Lande earned a law degree from Drake University and practiced law in Des Moines before joining the professional staff of the Pittsburgh Jewish Federation.


South Florida Legal Guide 2016 Financial Edition

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