Why Donate Real Estate?
A real estate donation can prove to be a smart financial decision. The example below illustrates how one couple might make a charitable donation of appreciated real estate while maintaining an income stream for themselves, receiving current year tax deductions and achieving philanthropic goals.
Situation of Mr. and Mrs. Smith
- Husband, 68; Wife, 72 – residents of Los Angeles, CA
- Own a four-plex rental property in Jacksonville, FL
- Purchased the rental property 25 years ago for $250,000
- Rental property is nearly fully depreciated with a basis of $25,000
- The property currently appraises for approximately $750,000
- Neither of the Smiths want to deal with the headaches associated with ownership of the four-plex anymore
- Both are retired
- The Smiths need to continue to receive the income derived from the rental property asset
- Both are charitably motivated to provide support to their local humane society upon their death
Solution for the Smiths:
- The Smiths establish a Charitable Remainder Trust (CRT) with a 7% payout, naming themselves as the income beneficiaries
- The CRT will provide regular cash flow to the Smiths for the remainder of both of their lives
- The Smiths will avoid paying capital gain taxes on any built-in gains in the four-plex upon the sale
- The Smiths will receive an immediate charitable income tax deduction – which may be carried forward for five additional years and are able to make a meaningful contribution to their local humane society
- The Smiths rid themselves of rental property management hassles
Many people find themselves in a situation similar to the Smiths. Contact us today for a more detailed analysis of your own personal situation.
1 Cash flows illustrated are pre-tax based upon an initial CRT contribution of $675,000. Monthly cash flows will vary on an annual basis as CRT assets are revalued.