Jul 31 2008
Gift of a Remainder Interest in a Residence
Why is a gift of a remainder interest attractive?
This gift is attractive because it allows individuals and couples to make substantial gifts and generate meaningful income tax deductions without having to change their lifestyles.
Let’s assume Mary Ross, age 72, is a widow with six children who live in other areas of the country and are doing quite well financially. Mary plans to leave the majority of her estate to her children, but would also like to make a charitable gift as part of her estate plan. Because none of Mary’s children live in the area and are not interested in the home, Mary decides to make a gift of her home now to her favorite charity. In doing so, she will retain the right to live in it for the rest of her life and will also retain the responsibility for maintaining it.
Because Mary has made a qualifying gift to a recognized charity, she is entitled to a charitable income tax deduction for the present value of the future (remainder) interest going to the charity. If the home were worth $2 million, Mary would receive an income tax deduction of approximately $1,140,000, assuming that the federal interest rate was 5%.
Are there limitations on the amount of charitable deductions that can be taken against income?
Charitable deductions can only be taken against adjusted gross income (AGI). Generally, AGI is all of your income, but there are some minor exceptions. For a gift of a remainder interest, you can deduct up to 30% of your AGI in any one year if you make the gift to a public charity. This percentage limitation decreases to 20% of AGI for gifts to charities other than public charities. Since charitable gifts are itemized deductions, those families with higher incomes may lose some benefit of the deduction because of the phase out of the itemized deduction. It is extremely important that you consult with your tax advisor prior to making a gift of a remainder interest in a residence to determine if you can fully benefit from the income tax deduction.
Gift of a Remainder Interest in a Residence Outline
If you are considering a Remainder Interest, this report will give you important information that you must have.
Get your Free Report “Disadvantages of a Remainder Interest in a Residence”
