Ask the Expert, Dr. Alice Pinsley, Certified Financial Planner™
Alice Pinsley, CFP™
Alice Pinsley is a nationally recognized Certified Financial Planner™ who
specializes in charitable gift planning. She is a frequent speaker on income
tax planning, estate planning and charitable gift planning. She is an advisor
to charitable organizations across the country, helping donors to structure
their gifts.
Below are some of the more common questions Defenders' members ask Alice.
Ask Alice a question about financial and gift planning by sending an e-mail
to legacy@defenders.org
I own an appreciated rental home, and am concerned about the impact
that rising interest rates might have on the value. I think it is a smart
time to sell, but am concerned about the capital gains tax I would have
to pay. I have been depreciating the property for tax purposes, so this
has lowered my cost basis considerably on the property. Is there a way
I can avoid capital gains tax through a charitable gift, but still benefit
financially from the property? See Response
Under the new tax laws, your rental home is an ideal asset to donate to a
life income arrangement called a charitable remainder unitrust. Since a charitable
remainder unitrust is tax-exempt, your property can be sold tax-free after
it is donated to the trust. This means that the full sales proceeds (minus
any sales commission) can then be reinvested for your benefit. The capital
gains tax saving will be substantial, since the gain attributable to depreciation
taken would still be taxable at a 25% capital gains tax rate on a sale. You
would choose a percentage payout when you create your trust. Your income in
the beginning would be limited by the income earned. However, beginning on
January 1 after the property is sold, you would receive your full chosen percentage
of the January 1 trust value as revalued each year. You would also receive
an immediate income tax deduction upon making your gift for part of the property
value. The lower the percent payout you choose, the larger your deduction will
be. After your lifetime, the principal would be distributed to Defenders of
Wildlife, or divided between Defenders and other charities.
I have a safe-deposit box full of EE bonds and understand that
it is no longer possible to convert them into HH bonds to defer reporting
the accrued interest at final maturity. Can I give some of these bonds
to charity? See Response
Unfortunately, it is not possible
to directly transfer your EE bonds to charity.
However, there are other alternatives you might wish to consider. One is to
redeem them and donate the cash proceeds to charity. While you will need to
report the accrued interest as income on your tax return, you will get an income
tax deduction for the entire value of the bonds (including the amount of the
accrued interest). If you itemize deductions and can use the entire deduction
in the year of the gift, you will offset the accrued interest with your deduction.
Another possibility is to cash in some of your bonds and establish a Defenders
of Wildlife charitable gift annuity with the cash proceeds. You will need to
report the accrued interest on the bonds, but the tax deduction you will get
for your gift annuity would offset some or all of the reportable interest.
You would then receive lifetime income from the gift annuity, with the annuity
rate depending on your age when you make your gift. Rates now range from 6%
(age 65) to 11.3% (age 90).
If you prefer to hold onto your bonds, you can leave them to Defenders or
other charities in your will. In fact, these are some of the smartest assets
to leave to charities, since they are taxed more heavily than other assets
if left to heirs. If your estate is taxable, and you leave the bonds to individuals
other than your spouse, they will be subject to estate tax. Plus, your heirs
must pay income tax on unreported accrued interest at the earlier of the time
that the bonds are redeemed or reach final maturity. Both estate tax and income
tax and avoided entirely if the bonds are left to charities.
I have noticed that stocks have rebounded considerably since the
election. Is it still smart under the new tax laws to donate appreciated
stock to charity, rather than cash? See Response
Yes. One of the most advantageous ways to give is to donate appreciated stock
or mutual funds you have owned more than one year. This provides you with two
tax benefits. You get an income tax deduction for the fair market value (mean
between the high and the low on the date of your gift). And, you completely
avoid the capital gins tax that would be due on a sale. (The capital gains
tax on securities has been reduced from 20% to 15% for individuals in tax brackets
over 15%). However, if you have depreciated stock, you should sell
it first and then donate the cash proceeds. By selling the stock, you can use
the capital loss to offset capital gains and then up to $3,000 of ordinary
income. You can then donate the ash proceeds and get a charitable deduction
for your gift.
Ask Alice a question about financial and gift planning by sending an
e-mail to legacy@defenders.org
If you would like more information, please call us toll-free at 1-800-915-6789,
send email to legacy@defenders.org or
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