Don’t overlook real estate and privately owned business interests
Cash is always appreciated, but there are better assets to give charitably.
Charitable gifts of appreciated marketable securities can provide dramatically enhanced tax benefits.
Real estate and privately owned businesses may offer the greatest overall charitable tax benefits.
In Part 1 of this article, we explored how gifts of assets other than cash—primarily appreciated marketable securities--can provide a tax advantaged way to support the causes and organizations you believe in.
While many of you are aware that you can gift appreciated marketable securities in lieu of cash, the opportunities to secure these enhanced tax benefits are too often missed. Even more frequently missed are opportunities to give real estate and privately owned business interests prior to a sale. These assets often provide even greater tax-leveraged opportunities because the income tax basis for these assets is often lower than the basis of your marketable securities. Thus, there’s a greater built-in gain that is subject to tax upon sale.
For example, real estate that has appreciated in value and that has been depreciated over time will often have a very low income tax basis. A successful business that was started from the ground up may have little to no basis. So, while publicly traded stock worth $500,000 with a basis of $250,000 would generally be considered a good asset to give to charity, a gift of real estate worth the same amount ($500,000) but with a basis of $100,000 would provide even greater tax savings and leverage.
Of course, gifts of marketable securities are significantly easier to facilitate than gifts of real estate and privately owned businesses. And the timing of a sale of marketable securities is generally much easier to control and dictate than a sale of real estate or an interest in a business. However, in the right situations, the additional tax savings and leverage are well worth the extra effort and complexity. For many families, the bulk of their wealth may be tied up in their businesses or real estate investments, and they may not have a significant marketable securities portfolio from which to gift appreciated assets. In those situations, a gift of real estate or an interest in a privately owned business may be your only leveraged opportunity for giving from non-cash assets.
Charitable giving in general--and giving non-cash assets in particular--can help you mitigate your tax burden significantly while doing more to support the causes you believe in. as always, check with your advisors and the intended recipients of your philanthropy before making your generous gifts.
Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail email@example.com.
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