Charitable Planned Giving can be a fundamental part of an individual’s overall Estate Plan. There are many different types of Gifts and structures that can be established to facilitate charitable giving maximize Gift and Income Tax Advantages.
Outright Charitable Gifts. The simplest form of charitable giving is through outright gifts of cash or other property to one or more charities. Such gifted property fully qualifies for a Gift Tax Charitable Deduction and is removed from the Donor’s potential Taxable Estate. Moreover, such a gift gives rise to an Income Tax Charitable Deduction.
Generally, a current Income Tax Deduction is available for the full value of the gifted property up to fifty percent (50%) of the Donor’s Adjusted Gross Income.
For a gift of an appreciated capital asset, the deduction is allowed up to thirty percent (30%) of the Donor’s Adjusted Gross Income.
In both cases, there is a five (5) year carryover of any unused part of the deduction. By giving away highly-appreciated property to a charity, one can avoid the Capital Gains Tax on a future sale of such property.
Selecting Property to Give. The goal of most Estate Planning techniques is to reduce future Estate Tax at a minimum (or no) current Gift Tax cost.
Property with a relatively low present value, but with great potential appreciation, is the most advantageous property to give away.
Obviously, the lower the current value and the higher the potential for appreciation, the better. It may not be wise to gift property which is already highly appreciated, and on which a large Capital Gains Tax would be recognized if sold because a Donee takes the Donor’s tax basis in the property gifted.
This is to be contrasted with property acquired from a decedent, which receives a “step-up” in tax basis in a beneficiary’s hands, following the death of the property owner.
Thus, all appreciation prior to the property owner’s death will forever go untaxed.