A Rural Land Owner

A 72 year old woman owned farm land in Mississippi that was valued at $400,000. She rented it to a production farmer, iStock_000001425088XSmalland earned a profit of $1,700 annually. She wanted to increase her income without having to pay capital gains taxes on the sale of the land. She also wanted to leave something to her church, of which she has been a member for over thirty years.

When she completed the Charitable Exchange for the land, with her church as the charitable recipient, she received an annuity of $400,000, increasing her annual income from $1,700 to $19,040. This income will continue every year for the rest of her life. She paid no capital gains taxes or commissions on the exchange. Her Church received an immediate cash donation of $50,000 as their share of the gift. She also received a tax deduction of approximately $252,000.

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Reluctant Landlords

BW_coupleA couple, the man 74 and the wife 70, own a 10 unit apartment in Southern California that is now free of debt. The husband is now becoming physically weaker as he ages, and is not able to maintain the units as he has in the past. They had net income of $73,500 but after paying Federal and State income taxes, they have income of about $43,300 from the building. They need this income to maintain their lifestyle, and cannot even afford the thought of another capital improvement to the units.

If they were to sell the units, they would have to pay commissions and capital gains taxes of about $360,000. They decided to execute an exit strategy utilizing a Charitable Exchange with their local animal shelter as the beneficiary of the cash gift. The building has a market value of about $1.2 million.

They pay no income taxes or commissions on this transfer. The Owners receive a lifetime annuity of $1.2 million, payable at $43,000 per year until both are gone. The Owners receive a tax deduction for their gift of $653,000 that must be used over this year and the next five years. The animal shelter received an immediate cash gift in the amount of $150,000.

 

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