Charitable Gift Annuities

Charitable gift annuities: save extra tax dollars by making charitable gifts ot appreciated stocks or other appreciated property to deserving organizations. How does this work?

The tax law allows you to take a charitable deduction for the fair market value of gifts to qualified charitable organizations, subject to certain limitaitons and requirements. Such gifts may be in the form of either cash or other property.

Suppose you donated appreciated real estate to a charitable organization, get a charitable deduction, and also avoid recognition of capital gains tax.

For example, assume you owned real estate worth $100,000 that you bought years ago for $10,000. If you sold the real estate you would recognize $90,000 in capital gains, on which you would have to pay taxes estimated at $22,500.

By gifting the real estate to a qualified charity, you avoid the capital gains tax and also get a charitable deduction of $100,000, worth $32,000 in tax savings. In this example, the total tax saving on the gift of appreciated real estate is $543,000. Stocks can be treated the same way by donating stock worth $10,000 to a qualified charity you recognize no capital gains, pay no taxes, and you get a full deduction for the fair market value of the gift, $10,000. In this example you save $3,200 in income taxes, plus another $2,500 in capital gains taxes.

One rule to keep in mind is that the tax deduction for gifts of appreciated stock or real estate to charity is limited to 30 percent of adjusted gross income, instead of the 50 percent of adjusted gross income limitation applicable to cash gifts. If you exceed the limits, you may carry over the excess for five years.

Another rule is that you must have owned the appreciated stock or real estae at least 12 months to take a tax deduction for the full fair market value. There are other tax rules that may affect your particular situation, so it is often advisable to consult a tax expert.

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