Use your resort property to fund philanthropy, receive an income for life and get a tax deduction.
Does this statement sound “too good to be true”? It’s not! In fact the AARP Foundation is encouraging second homeowners* to contact them to explore a variety of concepts using real estate to fund donations. *(timeshares and shared ownership arrangements do not qualify).
Here is an example of a donation that fulfills the criterion:
Property purchased in 1985 for: $50,000
Physical improvements: 10,000
Tax basis $60,000
Annual holding cost including property taxes, insurance, repairs and common area fees:
$6,000
Present Fair Market Value $200,000
No mortgage
Owners/Donors ages 68 and 75
The owners decide to make a donation to AARP Foundation of the property. In exchange for the equity in the property the donors receive a life time income created by establishing a Charitable Gift Annuity: Base on the projected net proceeds from the sale of $180,000 and a 6.0% annuity rate based on the donor’s ages, the donors would receive a monthly tax-favored payment of $900 for life. This payment is secured by placing the sales proceeds in trust at Wachovia Bank and a guarantee by the Foundation’s parent organization the AARP.
Projected gift deduction: $58,000
This deduction can be used in the year the gift is transferred and an IRS five-year carry forward is available for any unused portion. For donors in the 30% Federal Tax Bracket and 9% State Income Bracket this would provide a $22,620 tax savings.
Other Options:
Owners may also choose:
- To make a straight donation to support the Foundation Core Programs. This would allow the donors to take a $200,000 gift deduction;
- Donate 60% of the property ($120,000) and receive 40% ($80,000) in cash. This is known as a “Bargain Sale”;
- Establish a Charitable Remainder Trusts in lieu of a Charitable Gift Annuity;
- Make the donation now and retain a life estate with the right to use it or rent it to provide income; or
- Provide for the gift under the terms of a will. This could be for all or just a percentage ownership of the property
The AARP Foundation has established a network of Realtors, title companies and consultants to facilitate gifts of real estate. In many cases the donors and AARP receive a discount on real estate brokerage services. This allows more money to flow into the gift arrangement at the closing of the sale to a third party.
The example used in this article is for illustration purposes only. Each case must be evaluated and structured on an individual basis. Donors should seek personal tax and accounting reviews to protect their interests.
To view the programs AARP and the Foundation are supporting visit their web site at http://www.AARP.org.
For more information contact Dr. Sterling Kerr, Director of Gift Planning, AARP Foundation at 239-992-7115 or via email at skerr@aarp.org