Case # 1:      Sale Of Primary Residence

Bill and Sue D., bought a lovely home in a very good neighborhood 20 years ago. They now are retiring and would like to sell their home and move to a new property in a retirement community. The home they bought 20 years ago for $300,000 now has a fair market value of $1.5 million. They have not used their $500,000 exclusion on their home and with the $300K cost basis; they would pay capital gains tax on $700K. After deducting for capital gains taxes and RE selling expenses etc. they would net less than $1.3 Million.

The trust planner recommends they enter into discussions with their favorite charity about the possible purchase of the home. They would like to sell the home, receive sufficient funds to buy a new property and enjoy additional liquidity for their retirement security. They are interested in receiving $800,000 or more in cash.

After extensive discussions, the charity indicates that it would be willing to pay $1 million for the home. This would enable Bill and Sue to claim a charitable deduction for the $500,000 excess value. This appreciated-property type deduction is usable in the present year, with a carry forward for an additional five years, until exhausted or the time window closes.

Bill and Sue receive $1 million in cash. This equals two-thirds of the total value of the property. With the allocation of two-thirds of the $300,000 basis, or $200,000, plus their $500,000 exclusion for the sale of their principal residence, their adjusted basis is $700,000. They then have a taxable long term capital gain of $300,000. The tax at 15% is $45,000 on this amount.

However, the potential tax savings over the six years on the $500,000 gift equal $150,000. They are therefore able to receive $1 million plus have potential additional net tax savings of $105,000. Their favorite Charity receives $500K benefit or $400K after selling expenses.

Bill and Sue enjoy the convenience of selecting the time for the sale, working with the charity’s staff and benefiting from a sale with substantial cash transfer and no net tax cost. In addition, they feel good about making a major gift to their favorite charity and appreciate the recognition.