With the continuing increase in property values, many people find that their real estate is their greatest asset. But these assets often carry a high price: property tax and maintenance costs, if held; capital gains tax, if sold. A gift to Scouting of property residential, rental, vacation homes, farms, commercial, undeveloped, or even land rights such as oil, gas, water and mineral rights may offer significant benefits.
Generally, outright gifts of real property entitle you to:
- Avoid the capital gains tax on any appreciation in value, and
- A charitable income tax deduction based on the fair market value of the property.
Example: A donor invested $20,000 in a piece of land many years ago. It is now worth $100,000. If he contributes it to his local council, he is entitled to a deduction of $100,000 on his income tax return. Also, he will not owe the capital gains tax which would be due had he sold the property (a savings of $16,000).
Before deciding on a gift method, you will need to know: 1) the appraised value of the property; 2) your basis and any debts or liens on the property; and 3) your plans for, and any family interest in, the property. Also, discuss your gift with the council to determine how or if the property will be used in its program or if there are any environmental concerns.
- As with gifts of stocks and bonds, land held for more than one year is deductible up to 30% of a donors AGI for the year. If held for less than a year, it is deductible up to 50% of AGI for the year, but the deduction will be limited to the propertys cost basis. The five year carryover rule applies here as well.
- Property with a mortgage or lien usually does not make a good gift. The tax deduction will be reduced by the debt amount, and the donor is also treated as having taken a similar amount into income, regardless of who is responsible for the debt.