Donating property can produce surprising benefits
Suppose you've been considering a charitable gift but haven't found it practical to do so. What about considering a gift of real estate? Why? Because a present or future gift offers you the opportunity for valuable income tax and estate tax savings. You can also free yourself of immediate and future management and selling issues.
If you make a gift of real estate now and are in the position where you itemize deductions on your return, you can receive a substantial income tax deduction for that gift. Or, perhaps, you want or need to use the property for some time to come or even retain lifetime use. In either case, you can still make the necessary arrangements now and benefit from a sizeable current income tax deduction.
John, in his 60's, a widower, donates a remainder interest in his home, subject to his right to occupy or rent the home for life. At the time of the gift the property value was $200,000. His accountant, using a formula required by the IRS to discount the gift based on John's life expectancy and the future depreciation on the house, determines the value of his income tax deduction to be in excess of $ 55,000.
When you make an outright gift of real estate to a charitable cause, you obtain an income tax deduction equal to the property's full fair market value (if held long-term) instead of the lower cost basis. (Normally, your deduction for a gift of appreciated real estate in any year is generally limited to 30% of your adjusted gross income, with a five-year carryover of the unused deduction).
This income tax charitable deduction lets you reduce the cost of making the gift and frees cash that otherwise would have been used to pay for taxes and maintenance. You also avoid tax on the property's appreciation, (beware of capital gains tax!), the transfer isn't subject to the gift tax, and the gift reduces your taxable estate. That adds up to a considerable amount of savings!
New York Times article on Donating Property
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