When considering charitable options, many people assume their gift must be in cash or securities. Property such as real estate, special collections, jewellery, equipment and other tangible personal items have serious tax implications that could benefit both you and Citadel Foundation. Benefits include: a tax receipt for the appraised market value; and should the contribution exceed the amount eligible for a tax credit in the year, the unused portion of the credit can be carried forward for up to five years.
Giving your principle residence (residual interest)
There is a way you can give your principle residence to Citadel Foundation, get a major tax benefit and continue to use and enjoy your home for the rest of your life or for as long as the life of the donors spouse (after the death of the donor).
When the transfer is made, the donor is entitled to a charitable tax receipt for the present value of the “residual interest”(the value in today’s dollars, of the property that Citadel Foundation will receive upon your death. This is an actuarial calculation based on the current fair market value of your property, your age, and the current discount rate).
Example
(assuming combined tax savings credit of 50%)
John, 72 years old, owns a home valued at $200,000. He plans to live in his home for many years but would like Citadel Foundation to have it when he dies. He transfers ownership of the property to Citadel Foundation, retaining a life interest for himself. There is no taxable gain on the transfer as the house is John’s principle residence. John is responsible for the maintenance and other specified expenses specified in the gift agreement.
| Fair Market Value Of Property | $200,000 |
| Donation Receipt | $98,000 (present value of residual interest) |
| Tax Savings | $49,00 |
The portion of the donation receipt which John may claim in any given year is limited to 75% of his annual income, but he has the gift year plus five additional years to use the full amount.
This planned giving tool allows John to receive considerable tax savings while having a major impact on Citadel Foundation. Should it become necessary for John to sell his house prior to his death, he has several options.
- he can rent the house and keep the income
- give his life interest to Citadel Foundation and receive an additional tax receipt
- John and Citadel Foundation can jointly sell their interest in the house (John would receive a share of the proceeds based on the value of his life interest)
Real estate that is not your principle residence may also be gifted, however you will be taxed on 50% of the capital gain attributable to the residual interest. The tax donation will always more than offset the tax on the gain.