This month, a donor will complete a contribution of real property to Hamilton. For a number of reasons, this contribution meets his philanthropic and personal planning objectives. First, he is supporting alma mater and protecting its southern boundary as the undeveloped, 66-acre property borders the Kirkland Glen.
Second, the gift provides a significant income tax charitable contribution deduction that helps to offset the tax due from the sale of a highly appreciated commercial property.
Third, structured as an Installment Bargain Sale, Hamilton will make payments to the donor for the next six years to replace some of the income that used to come from the commercial property. In short, the donor has "unlocked" his equity in a highly appreciated, illiquid, non-income producing asset, while saving capital gains tax.
Finally, the contribution removed the value of the gift from his estate, saving estate tax, as well as simplifying the responsibilities of his executor at some point in the future.
The Wall Street Journal reported this week that the real estate market may have reached its peak making this an especially attractive time for donors to consider real property contributions to Hamilton. As you have conversations with potential donors to the College, you may wish to suggest that they consider a contribution of real property. Commercial, residential, agricultural, vacation and undeveloped real properties have been contributed to Hamilton in recent years providing the donors with income, capital gains and estate tax benefits.
The imminent Installment Bargain Sale demonstrates the planned gift concept of a contribution of a percentage of real property. Outright contributions are always preferred, however, large, very valuable properties figuratively may be divided. Beyond outright contributions and the Installment Bargain Sale concept discussed, donors may contribute:
We are available to assist potential donors of any type of real property in the form that is most advantageous to the donor.
Installment Bargain Sale
Assumptions: FMV $500,000
Cost Basis $50,000
Bargain Sale $150,000
Charitable Deduction $350,000
Cost Basis allocated to sale $15,000
Cost Basis allocated to gift $35,000
Donor combined income tax bracket is 43.6%, 25% for capital gains.
Modest down payment, $25,000 per year for 6 years, interest at 5%, quarterly.
Donor Benefit: Immediate income tax savings $153,000
Capital gains avoided $315,000
Capital gains recognized $135,000, approximately $22,500 per year.
Hamilton makes a number of resources available to you, including the following: