Even though many donors make outright gifts of cash or publicly-traded securities, other assets can also be appropriate to transfer directly to PNB. They include different kinds of real estate (e.g., rental houses, apartment buildings, commercial properties) and various holdings in private businesses, whether structured as closely-held corporations, partnerships, or limited liability companies.
Provided you have owned a capital asset more than one year, when you give it to PNB you will receive an immediate income tax deduction for its fair market value (as established by a formal appraisal), and you will avoid paying tax on any capital gain. Naturally, before a gift is made, PNB will need to determine that the asset will be suitable for it to receive.
As an alternative, you may wish to consider selling an asset to PNB at a bargain price, i.e., something less than its full value. The value in excess of the sale price can be claimed as an income tax deduction, and any capital gain will be taxed only in connection with the sale portion of the transaction. Consider this example:
Ms. F sells to PNB a piece of real estate appraised at $100,000 for a price of $40,000. The cost basis of the property is $25,000. She is entitled to a $60,000 income tax charitable deduction. She will be taxed on only $30,000 of the gain and avoid tax on $45,000 of the gain.
This possibility is especially attractive to older donors who would like to remain in their current home for the rest of their lives but would like to have PNB be the eventual owner of the property. A large income tax deduction is available as soon as the life estate has been created, and a number of options are available if you determine later that you need to move. Some donors even choose to arrange a life estate with respect to a vacation home or farm. Here is how a life estate might work:
Mr. N, age 79, purchased his home almost 40 years ago. It has recently been appraised for $500,000. The land is worth $200,000, with the house and other improvements worth $300,000. The appraiser considers it to have a useful life of 45 years and a salvage value of $20,000 at the end of that period. Mr. N would like to continue living in the home for the duration of his life and assure that it then goes to PNB. He would also like to reduce his taxes now. If he gives the property subject to a retained life estate, his charitable deduction will be $390,116.
(Example uses a discount rate of 1.6%.)
We would be pleased to work with you and your advisors to explore the choices available to you. There is no cost or obligation, and all information will be kept confidential. Please contact Katie Johnson, Major Gift and Planned Giving Manager, at 206.441.3599 or firstname.lastname@example.org.