Donating appreciated real estate, such as a home, vacation property, undeveloped land, farmland, ranch or commercial property can make a great gift to United Way of Olmsted County.
BENEFITS OF GIFTS OF REAL ESTATE
- Avoid paying capital gains tax on the sale of the real estate
- Receive a charitable income tax deduction based on the value of the gift
- Leave a lasting legacy to United Way of Olmsted County
HOW TO MAKE A GIFT OF REAL ESTATE
- Your real property may be given to United Way of Olmsted County by executing or signing a deed transferring ownership.
- You may wish to deed part or all of your real-estate property to United Way of Olmsted County. Your gift will generally be based on the property's fair market value, which must be established by an independent appraisal.
Ernie and Joan Watson purchased a waterfront lot at the lake many years ago and never got around to building their vacation home. They paid $35,000 for the lot and were recently offered $400,000 for it. If they sell the lot, they will incur federal capital gains tax, state income tax, and other taxes totaling about 25%, a bit more than $90,000. They want to establish an endowment to benefit one of their favorite United Way programs or initiatives. After much thought, Ernie and Joan decide to donate the waterfront lot.
They obtain a qualified appraisal valuing the lot at $390,000. They are entitled to a charitable income tax deduction of $390,000 (which they can use up to 30% of their Adjusted Gross Income each year for up to six years). In their 40% combined state and federal income tax bracket of 40%, the deduction will save them $156,000 in income taxes, and they will avoid the $90,000 capital gains tax they would owe if they sold the lot. The after-tax cost of the gift is only $154,000. ($400,000 minus capital gains savings of $90,000 and income tax savings of $156,000). The United Way of Olmsted County can sell the lot to interested buyers for the $400,000 they offered and will be able to use every penny to meet needs in Ernie and Joan's community.
LIFE ESTATE RESERVED
Give a residence or farm during your lifetime but retain the right to use it for the rest of your life (and/or the life of a loved one).
Benefits of a life estate reserved
- Receive a federal income tax deduction for the value of the remainder interest in your home or farm
- Preserve your lifetime use and control of your home or farm
- Create a life estate based on more than one life. This will preserve the use of the property for you and a loved one, such as a spouse or dependent child
How life estate reserved works
- You deed your home or farm to United Way of Olmsted County. The deed will include a provision that gives you the right to use your home or farm for the rest of your life and that of any other life estate party named in the deed.
- You and United Way of Olmsted County sign a maintenance, insurance and taxes (MIT) agreement to explain that you will do your best to keep the property in good condition and that you will maintain property insurance and pay the property taxes.
- When the owners of the life estate pass away, the home or farm will belong to United Way of Olmsted County. We will use or sell the property to further our charitable work.
Jim Green, 58, is an executive with a national corporation. Jim and his wife Ellen, 55, have two adult children. In the past both have served on the board of the United Way, and the couple would like to make a major gift to benefit the United Way of Olmsted County. They own a lakefront home that has appreciated a great deal since it was purchased. Their family often spent weekends and vacations at the lake, but the children’s careers have taken them far away and they rarely get home to join their parents at the lake. Jim understands that their estate may have to sell the lake home to help pay estate taxes, and the family’s estate would be more liquid if the lake home were excluded.
Jim and Ellen do not want to sell the home because of huge capital gains tax liability and, of course, because they want to continue using it on weekends. After discussing this with the staff at United Way of Olmsted County and their tax and legal advisors, Jim and Ellen decide to use the home to create a retained life estate. This means the United Way of Olmsted County will take ownership of the property now but Jim and Ellen will retain the right to use it, be responsible to insure and maintain it for their lifetimes. Since the home appraises for $500,000, the Greens will receive a tax deduction of just under $200,000 which, in their 40% income tax bracket, will save them $80,000 in taxes. Their estate will have lower taxes and greater liquidity.
There may be other scenarios in which special considerations will need to be given.
- Mortgaged Property - Please contact us if the property you wish to give has existing debt or a mortgage. Indebtedness can affect your charitable tax deduction.
- Difficult Property Gifts - Certain properties pose challenges. Please contact us before making a gift of real estate so we can explain our gift acceptance policies.
- Capital Gains Tax - Contact us about the potential capital gains tax considerations of your gift. You may also be interested in learning about planned giving options that provide life income.
We are here to help! Contact Laken Jefferson at firstname.lastname@example.org or 507-528-4830 with questions or with your planned giving intention.