OPTION 1—an outright gift of appreciated property

You may find this is a straightforward and tax-wise way to meet multiple planning goals. It works like this:

• You obtain a qualified appraisal of the property. (This is necessary to establish the property’s fair market value.)

• You donate the appreciated property to Timothy Two within 60 days of the appraisal.  

• Your gift qualifies for an income tax charitable deduction (if you itemize) for the property’s full fair market value. Your deduction in any one tax year is limited to 30% of your adjusted gross income, but any unused deduction amount can be carried over to up to five years.

• You will owe no capital gains tax on the property (as you would have with a sale). 

 

What about mortgaged property?

Mortgaged property tends to be a problematic gift asset. Usually, the best solution is to pay off the mortgage before donating the property. If this is your situation, reach out to us and/or talk to your attorney to figure out the best way to proceed. 

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OPTION 2—a bargain sale

You may find this option useful if you are ready to dispose of your property but aren’t in a position to give it away. A bargain sale is part gift and part sale, and therefore, provides both a current income tax deduction and proceeds from the sale of the property. It works like this:

• You sell the property to us for less than its full fair market value—for example, if you sell us a property appraised at $500,000 for only $200,000.

• In the above scenario, you receive the $200,000 sale price, but you also make a $300,000 gift to us.

• The gift portion qualifies for an income tax charitable deduction.

• No capital gains tax is due on the gift portion.

 

OPTION 3—a gift of a remainder interest

You may find this is the perfect solution if you could use an income tax deduction now but would like to continue to use and/or occupy the personal residence or farm for the rest of your life. It works like this: 

• You enter into an arrangement with Timothy Two under which the property will be irrevocably transferred to us at the time of your death. 

• You retain a “life estate” that gives you the right to live on or use the property throughout your lifetime.

• Even though the gift doesn’t actually take place until later, because it is irrevocable, your gift qualifies for an immediate income tax deduction for the discounted present value of our future interest in the property. (Essentially, the value of the land and improvements reduced by the value of your lifetime use of the property.)

• After making a gift of a remainder interest, if you decide you no longer need the property, you can choose to donate your life estate and receive an additional charitable deduction at that point. (Note that there will be issues with this option if it appears to the IRS that you planned to do this all along.)

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OPTION 4—a gift to establish a charitable remainder trust

You may find this to be a helpful option if you want to get rid of your property and establish an income stream to supplement other forms of retirement income. It works like this: 

• You give your property to establish a charitable remainder trust (CRT). 

• The trustee (which could be Timothy Two) is able to sell the property without incurring any capital gains tax.

• The trustee can then invest the sale proceeds and use the money to make regular income payments to you and/or your named income beneficiaries for life or for a stated term of years.

• At the end of the trust term, the remaining trust assets will pass to Timothy Two.

Read more about charitable remainder trusts.