Suppose you’ve been considering a charitable gift but haven’t found it practical to do so. What about considering a gift of real estate or stock? A present or future gift offers you the opportunity for valuable income tax and estate tax savings. You can also free yourself of immediate and future management and selling issues.
There are several ways in which giving outright gifts, such as real estate and stock, can further a special cause that you believe in while reducing your tax burdens.
First, you can deduct the full value of any outright gift to charity of appreciated stock, real estate or bonds from your federal, and perhaps state, income taxes. If you give appreciated property, like stock, your deduction is usually limited to 30% of your gross income for the year. (If you give cash or cash equivalents, you are allowed to deduct up to 50% of your gross income for the year!)
If you make a very large gift in a single year, you are, however, allowed to deduct up to the maximum of 30% of your gross income on that amount for five years after the year that you gave the property. This can mean substantial tax savings while making a gift to charity much cheaper than it would have otherwise have been.
For example, if you are in the 38% federal income tax bracket, a gift of ten thousand dollars of appreciated stock will only cost you sixty-two cents per dollar. And, these tax savings come before even considering the effect that your gift has made on your capital gains tax burden or your estate tax burden!
Second, if you give stock or other appreciated property, you may be able to save on capital gains taxes. Any securities or real property that you have owned for 12 months or more and that have increased in value since you bought them are subject to capital gains tax when you sell them. The rate for capital gains taxes is currently 28%. So, you have to pay a 30% tax on any profits that you have made on your stock, bonds or real estate. However, if you make a gift of these securities to Rangjung Yeshe Gomde California, you get a charitable deduction for the full market value as of the day of transfer, while avoiding the tax on the capital gain. This can make a gift to Rangjung Yeshe Gomde much, much cheaper and much bigger than it would otherwise have been.
Third and finally, if your estate is above a certain threshold amount set by the federal government, you will owe estate taxes. Estate taxes take approximately half of your assets at death and give them to the government. By planning carefully, you can further the mission of organizations that you care about rather than giving your money to the government when you die.
All of these tax savings allows you to make a gift using an asset that might have been considered frozen because of the capital gain that would have been experienced if you sold it. Because you get a charitable deduction for the full market value, avoid the capital gains tax and reduce any potential estate taxes on the property, you are making a gift that can save taxes three ways!
Suzanne owns $10,000 worth of XYZ corporation stock, which she purchased for $2,000 two years ago. By donating this stock to Rangjung Yeshe Gomde she receives a charitable deduction of $10,000 on her income taxes. Assuming that she is in the 30% tax bracket, the gift will save her $3,000 in income taxes. In addition, if she had sold the stock, she would have realized a capital gain of $8,000 (the full market value of $10,000, minus her cost basis in the property of $2,000). Assuming a capital gains tax rate of 20%, her gift saves her $1,600 in capital gains taxes. In sum, Sue’s $10,000 gift to charity will only cost her $5,400 because of the tax savings she receives.
Here’s another example:
John is a widower in his 60s. He donates a remainder interest in his home, subject to his right to occupy or rent the home for life. At the time of the gift the property value was $200,000. His accountant, using a formula required by the IRS to discount the gift based on John’s life expectancy and the future depreciation on the house, determines the value of his income tax deduction to be in excess of $55,000.
As shown above, you can achieve significant tax savings from a gift even if you want or need to use the property for some time to come — even retaining lifetime use. This income tax charitable deduction and other tax savings lets you reduce the cost of making the gift and frees cash that otherwise would have been used to pay for taxes and maintenance. Also, you avoid tax on the property’s appreciation, (capital gains tax), the transfer isn’t subject to the gift tax, and the gift reduces your taxable estate. That adds up to a considerable amount of savings!
To read more about how giving stock or real estate can hel your favorite charity while improving your financial position — at any age — click on the following: Learn More About Stock and Real Estate Giving
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