Gifts of Real Estate

 Real estate: A sensible choice for funding a gift to Central Pennsylvania Conservancy

Real estate is an excellent choice for funding a charitable gift to Central Pennsylvania Conservancy. A personal residence, farm or investment property can be used to make a charitable gift. Such a gift may provide you with an income tax charitable deduction, estate tax savings and a reduction or elimination of capital gains tax.

Why use real estate to make a charitable gift?

• Significant appreciation in the value of real estate may expose you to large capital gains tax. Using real estate to make a charitable gift can reduce or eliminate capital gains tax liability.
• Often the high carrying costs and responsibilities associated with property ownership, such as real estate taxes and maintenance, become burdensome.
• The illiquid nature of real estate can pose serious challenges when it comes time to sell the property. Often a seller will not realize the full value of real estate if it needs to be sold quickly. This is why it may be advisable to fund a charitable gift with real estate and retain liquid assets in case you or your estate needs access to the funds immediately.
• Note: It is necessary to obtain a real estate appraisal to determine the fair-market value of real estate.

Making an outright gift of real estate

Making an outright gift of real estate provides significant tax benefits. First, you will not recognize capital gains on the property. Second, you may deduct the full fair-market value of the property, up to 30% of your adjusted gross income in the year of the gift. Any amount in excess of the 30% limitation may be carried over for five years. These benefits mean that the actual cost of such a gift may be much less than that of a cash gift.

Making a bequest of real estate

You may choose to give real estate to Central Pennsylvania Conservancy as a bequest in your Last Will and Testament. This will reduce your estate tax liability because the fair market value of the bequest is fully deductible for estate tax purposes. However, this will not afford you any tax benefits now. Please see Central Pennsylvania Conservancy’s legal names under the section on “bequests”.

Making a gift of a remainder interest in real estate

If you would like to use your personal residence to make a charitable gift to Central Pennsylvania Conservancy, but still live in it, you can transfer the property to Central Pennsylvania Conservancy while retaining a right of possession. You will immediately realize an income tax deduction for the present value of the remainder interest, and you can continue living in the home as long as you wish. However, you continue to pay real estate taxes and maintenance on the property so long as you retain possession. Note: personal residences and farms are the only real estate you can transfer while retaining possession. All other types of real estate must be transferred using a qualifying trust.

Making a gift of a partial interest in real estate

If you would like to fund a gift to Central Pennsylvania Conservancy with real estate, but the value of the gift you are contemplating is less than the fair-market value of the real estate, you may wish to give a fractional interest in the real estate. While an income tax charitable deduction is generally not permitted for an outright gift of a partial interest in real estate, there is an exception to this rule when the gift represents an undivided fractional interest.

Making a gift of real estate and generating a stream of income

If you would like to use real estate to fund a gift to Central Pennsylvania Conservancy while retaining a stream of income, you can use the real estate to fund a charitable remainder trust. This will enable you to receive payments for life or for a specified term (not to exceed twenty years). At the time the gift is made you will receive a charitable deduction for the value of the remainder interest in the real estate. This type of gift will enable you to receive an immediate income tax deduction, based on the full fair-market value of the property, the ages of the beneficiaries, and the rate of return. Note, in certain circumstances, income may begin immediately if property that generates income is also contributed. Finally, if you choose to fund your charitable remainder trust with real estate, the property must be unencumbered.