Part Gift and Part Sale

Susan and Kevin bought a vacant lot along Lake Michigan many years ago. They had planned to build a second home so that their family could spend their summers along the lake. However, as time went on, Kevin's job kept him in town and the children grew up before Susan and Kevin had the financial resources to build on the land.

Kevin: Over the years, that lot increased in value. We paid about $40,000 for the lakeside property, and it is now worth almost $500,000.

Susan: The lot has gone up greatly in value, and with the children out of the house, we were thinking of selling the property. We want to avoid paying so much tax on the sale. We were thinking of making a gift of 25% of the property to our favorite charity.

Kevin: I happened to be talking to a CPA at a community luncheon. He mentioned that we could probably give about twice as much with almost the same cost if we gave 25% of the property (prior to the sale) rather than writing a check after the sale.

After talking to their tax advisor, Kevin and Susan discovered that if they gave a 25% interest in the property to charity, they would receive two benefits. First, they would receive an income tax deduction for the value of the gift. Second, they could avoid capital gains tax on the portion of the property that they gave to charity.

Susan: That is what we decided to do. By giving charity a 25% interest in the property prior to the sale, we saved the capital gains tax on that part. The deduction offset a large portion of the tax on the $375,000 we received when the property actually sold. We are very pleased with the "double benefit" from giving the property, and our favorite charity received $125,000, a very nice gift.

Is a part gift and part sale right for you?

A part gift and part sale of an appreciated asset is an excellent tax strategy. You can use the deduction from the gift portion to offset the capital gains from the sale portion of the transaction. If you would like to learn more about part gift and part sale strategies, please give us a call. We would welcome the opportunity to answer your questions.

*Please note: The names and image above are representative of a typical donor and may or may not be an actual donor to our organization.