Real Estate

  • Charitable income tax deduction for full market value, avoid the capital gains taxes.
  • Can take some time to complete, so allow plenty of time.

Real Estate

Paul and Peggy King purchased a waterfront lot at the coast 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, Paul and Peggy 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 Foundation can sell the lot to interested buyers for the $400,000 they offered and will be able to use every penny to meet critical needs in Paul and Peggy’s community.

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