Half a Loaf Is Better than None

Astute gift officers recognize opportunities for giving, and then seize the day! Such is the moment in some red-hot real estate markets where prices are exceeding the highs reached prior to the Great Recession. Owners who watched as their equity evaporated during the downturn may now be thinking this is the time to cash in on their profits. This may particularly be the case for donors who own infrequently used vacation homes and investors with rental properties who no longer wish to deal with tenant idiosyncrasies. However, sellers of these properties will not receive the generous exemption from capital gains taxes afforded to those who sell a principal residence.

Gift officers, proposing to a donor that they give real estate, may encounter one main objection. Donors may be reluctant to give the entire interest in the property, thereby forfeiting all equity which may be needed for future living expenses. The astute gift officer will make an alternate proposal – why not give less than a 100% interest, keeping a percentage for yourself that will give you some cash proceeds when the property is sold?

Upon sale and closing, the donor and charity will divide the proceeds as determined by their respective percentage interests. The charitable deduction derived from the charitable gift can be used to help offset the capital gain taxes from the percentage interest retained by the donor. The donor could also contribute a percentage interest to a charitable remainder unitrust, in which case the proceeds from the sale of the interest donated to the unitrust can be used to pay income to the donor for life.

Of course, the charity will need to perform the same due diligence that is prudent for any gift of real estate. An added layer of due diligence will require that the charity, as a co-owner with the donor prior to sale, be comfortable that the donor will be realistic and reasonable in the terms when the property is offered for sale. And as with any planned gift, the donor should be encouraged to consult her tax and legal advisors prior to making the gift.

As a gift officer we always prefer a full loaf, but the astute gift officer realizes that a half loaf is better than no loaf at all.