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Using Your Home as a Gift

Give property while continuing to enjoy its use

If you have considered making gifts to the University as part of your long-term financial and estate plans, you may want to consider ways a primary residence or vacation home can be used to make a future gift while enjoying a number of current and future financial benefits.

Through a gift of a remainder in real estate, you can make a gift of your home or other appropriate property now, while retaining the security of knowing you may live there for the remainder of your lifetime or as long as you wish. You continue to enjoy the full rights and responsibilities of ownership.

Because you are making an eventual gift of the property to UA, you are entitled to an immediate charitable income tax deduction for value of your gift. You continue to maintain the property, pay the taxes, and even receive any income it generates. Because you have provided for the future ownership of the property, however, it will not be subject to the possible expense and delay of probate. It will also not be part of your taxable estate, possibly resulting in what may be significant tax savings for your heirs.

 
Interactive Example

Marjorie, 77, lives in a home that was purchased a number of years ago. Marjorie plans to leave the majority of the estate to children who live out of state, but has decided to also make a substantial charitable gift in memory of a loved one who was a graduate of UA and a long-term supporter.

After talking with the children, Marjorie decides to make a gift of the home to the University now, retaining the right to live there for life. In so doing, a meaningful gift is made, while immediate income tax benefits are received, as well as the knowledge that the home will not be subject to estate tax.

Assumptions:

There are several assumptions that are used in calculating the charitable deduction for a life estate agreement:

  • Home valued at $500,000
  • The depreciable value (the value of the home minus the value of the land), which is $300,000
  • The salvage value, which is what it is worth at the end of the useful life, which is generally about 25% of the value of the depreciable value or $125,000
  • The useful life of the home, which is usually 40 years

Summary of benefits:

  • Enjoy immediate income tax deduction of $327,837.
  • Retain complete rights of ownership for life or other period donor determines.
  • Property is removed from taxable and probate estates.
  • Can continue for life of spouse or other survivor if desired.

Please use the Contact Planned Giving form or e-mail mailbox@advancement.ua.edu for more information about the tax and other benefits of giving your home.


Planning Tip: Gifts of remainder interests in real estate can be especially attractive today during a period of relatively lower interest rates. Depending on the time periods involved, charitable income tax deductions can currently be enjoyed in amounts well over 50% of the value of the property donated. This can serve to reduce federal income taxes for the year of the gift and up to five future tax years. Your advisor can help you determine if this gift is right for your circumstances.

The assumed date of transfer for this example is March 11, 2010. This example has used  the January 2010 IRC Section 7520 discount rate of 3% to optimize the charitable deduction.

NOTE: This illustration is provided for educational purposes only. The type of assets transferred, the actual date of the gift, and other factors may have a material effect on tax and other economic benefits as a result of making the gift described. The advice of your tax and other financial advisors should be sought before implementing a gift of this type.