The Best Things in Life Are “Free”
“Free gift” is a phrase that crops up so often in advertising that we forget it’s redundant (by definition, a gift must be “free”). But certain charitable gifts — and the deductions they generate — can almost seem free to donors. The trick is to choose a gift technique that lets you “have your cake and eat it, too.” Here are some appealing ways to boost charitable deductions for 2017:
A gift to charity of an undivided interest in a vacation home — Lorraine and Pete own a summer home that their family uses only four months of the year. They could contribute a 25% undivided interest in the home to charity and take an income tax deduction for about one-fourth of the home’s value. The family can continue using the home for most of the year. Charity is technically entitled to use the home for three months, but its real benefit comes when the home is eventually sold. At that time, charity would be entitled to 25% of the sale proceeds.
A gift of closely held stock — Linda is the owner of a small company (a C corporation). She can give stock in her company — worth $5,000, for example. The charity would seek to sell the shares, probably back to the company. The company pays the charity $5,000 and retires the shares. Linda would be allowed a deduction on her personal tax return, even though the cash actually comes out of her corporation, provided the charity is not required to sell the shares back to the company. She remains the owner of the company.
A remainder interest in a home or farm — Howard owns a condo where he spends the winter. He planned to leave the condo to charity at his death. Instead, he can transfer the unit now, reserving the right to use the condo during his lifetime, and take a current charitable deduction. The amount of his deduction depends on his age on the date of the gift and the value of the condo.
Gifts with retained income — Chester and Sue own appreciated stock worth $300,000 that pays only 2% dividends. They’d like to boost their income, but would owe capital gains tax if they sold the stock and reinvested the proceeds. They can use the stock to fund a charitable remainder trust that will pay them a higher income (at least 5% of the stock’s value) for their lifetimes. In addition to the increased income, immediate capital gains tax avoidance and the charitable deduction, they have the satisfaction of knowing that at their deaths, the trust will benefit their favorite charity.