A gift of real estate can be especially attractive if:
- You want to retain your cash and liquid assets but also make a significant gift to TCNJ.
- You want to avoid substantial capital gains tax liability which may have been a deterrent to selling appreciated.
- You are happy to be relieved of the management issues that come with rental or commercial property.
- You are considering downsizing, moving to a smaller home, retirement complex or closer to children.
- You are are considering selling vacation property or a shore home that is no longer utilized as extensively as it was in the past.
- You can eliminate maintenance and taxes and use those funds a lifelong income using your gifted property to produce charitable gift income .
- You would like to avoid problems associated with forced sales, multi-state property holdings and recognize the problems that can come from illiquidity of real estate.
- Through a real estate gift, you can reduce your taxes, and convert this asset to suit your financial goals and objectives better.
Real estate is an excellent way for some individuals to make a significant gift to TCNJ that might otherwise not be possible. A gift of real estate is a tax-wise method of providing support for TCNJ because of the two-fold tax savings. A residence, summer home, farm, commercial property, or vacant land may have appreciated in value to the extent that its sale would result in a sizable tax on the gain. If given outright to TCNJ, you can avoid this tax and realize a charitable deduction for the full fair market value. The property gift can also shelter your estate from future taxes.
How Can I Donate Real Estate To The College Of New Jersey?
There are a number of ways to make such a gift:
An Outright Gift
The simplest of these is to make an outright gift. For an outright gift of real estate to occur, a deed is drawn up that transfers your property to The College of New Jersey Foundation. TCNJ Foundation credits you with a gift equal to the fair market value of the real estate. This value is determined by a fair market value appraisal which is the donor’s responsibility to obtain. You are eligible for a charitable income tax deduction for the appraised value and you avoid any capital gains tax for which you might have been liable had you sold the property.
Example of Outright Gift
Mr. and Mrs. Lion, who are in the 31% income tax bracket, would like to make a charitable gift to TCNJ Foundation. They have owned a rental home – now worth $250,000 – since purchasing it ten years ago for $100,000.
By donating this property to TCNJ Foundation, the Lions will receive a $250,000 charitable deduction, which saves them $77,500 in income taxes (31%). In addition, the Lions avoid the potential capital gains tax of $30,000 on the $150,000 appreciation (20%).
A Gift With Retained Right To Live In The Property
Retaining the right to live in the property donated is also referred to as a “retained life estate”. Under this option, you transfer your home to TCNJ Foundation and specify in the deed that you are retaining the right to live in the house for the rest of your life or until you decide to leave it. You and TCNJ Foundation sign an agreement which spells out each party’s responsibility with regard to the property. The donor usually continues to be responsible for all expenses. At the time you transfer the property to TCNJ Foundation you receive a tax deduction for a portion of the market value of the property.
Example of Retained Life Estate
Billie Green has lived on the family farm for 40 years. Her will includes a provision that TCNJ Foundation will receive the farm at her death. This arrangement does not provide any current tax deduction for her. As an alternative, Mrs. Green decides to give the farm to TCNJ Foundation now, while retaining the right to live on the property for life. Given the farm’s current value of $500,000, she will be entitled to a current income tax charitable deduction of over $240,000, which is the value of TCNJ Foundation’s remainder interest.
By creating the retained life estate, Mrs. Green accelerates her gift and enjoys a large tax bonus without changing her lifestyle.
Part Gift/Part Sale
This type of real estate gift is also known as a “bargain sale” because it involves your selling property to TCNJ Foundation at a bargain price. You transfer property to TCNJ Foundation and, in exchange, TCNJ Foundation pays you an amount of money which is less than the property’s fair market value. The difference between the fair market value and what TCNJ Foundation pays you is considered a gift. You are eligible for a tax deduction and you avoid any capital gains tax on the portion of the transaction that is considered a gift.
A Gift With A Retained Right To Income
This gift arrangement uses real estate as the funding asset for a life income instrument. The basic concept is that you contribute your property to TCNJ Foundation and, in exchange TCNJ Foundation agrees to make income payments, generally on a quarterly basis, to you and/or a survivor for life. The amount of income you receive depends on the value of the property you donate and the ages of the beneficiaries. For this type of gift you receive a tax deduction on a portion of the market value of the real estate and generally avoid the capital gains tax. Many individuals use life income gifts to convert a non-income producing asset, such as land, to one that produces an income stream.
Example of Charitable Remainder Trust
Amy Green, age 67, owns undeveloped land that has increased tremendously in value. The land generates no income and is a cash-flow drain because of real estate taxes. Amy faces capital gain taxes if she sells the property to reinvest for income, or eventual estate taxes if she keeps the property.
After working with TCNJ Foundation’s planned giving staff and her own attorney, Amy uses the land to establish a charitable remainder trust. The trust will pay Amy a 6% income for life and then distribute its assets to TCNJ Foundation after her death. The trust provides a current tax deduction, avoids capital gain taxes, and removes the land from Amy’s estate.
A Gift Through Your Will
A gift through your estate can be made by stating a bequest of the specific property in your Will. On your death the real estate will be transferred to TCNJ Foundation, or in some instances the estate will sell the property and transfer the proceeds from the sale to TCNJ Foundation. Your estate will receive a charitable tax deduction for the value of the real estate at the time of your death.
The language to accomplish this is as follows: I/we give the property at ___________(insert address or brief description of the property you wish to bequest) to TCNJ Foundation, a New Jersey Corporation, located in the city of Ewing, New Jersey .
What Are The Steps Involved In Making A Gift Of Real Estate?
Making a gift of real estate is more complicated than donating assets such as cash or appreciated securities, but in many cases it is worth the extra effort. Because it can be complicated and time-consuming for both you and the TCNJ staff, we set a lower limit on the value of a piece of real estate TCNJ will usually accept as a gift. This threshold varies depending on the form of the gift. For a life income or life estate gift, for example, the minimum value we will usually consider is $100,000. For an outright gift, a bargain sale, or a gift through your Will, the threshold is considerably lower. There are a number of steps involved in completing a real estate gift. TCNJ staff will work closely with you throughout the process.
When we learn that you are considering a gift of real estate, we will first ask you to fill out a disclosure checklist. The checklist will provide us with the information we need to determine whether making the gift will be beneficial to both you and TCNJ. The checklist includes questions such as: What is the condition of the property? Are there any carrying costs (for example, a mortgage, monthly condominium fees)? Are there any environmental issues? What is the local real estate market like?
Once we have reviewed the checklist and discussed it further with you, the next step is for you, the donor, to have the property appraised. We need the appraisal to set a value for your gift and the Internal Revenue Service (IRS) requires it in support of your charitable tax deduction. The IRS has specific rules about the kind of appraisal they will accept.
Once the appraisal is done we will settle on the giving vehicle you will use to make the gift. Often at this point we will also arrange to have a phase I environmental survey done on the property, at our expense to make sure TCNJ Foundation is not inadvertently exposed to any future liability. If the property is being used to establish a life income arrangement TCNJ reserves the right to obtain a market value appraisal at the TCNJ’s expense. Once these steps have been completed, the legal paperwork can be finalized by the lawyers and the gift will become a reality.
You Are Urged To Consult Your Own Legal Counsel About The Applicability Of These Gifts To Your Own Particular Circumstances.