Leaving Your Home and/or Property to the Land Trust: An Example of the Possible Lifetime Tax Benefits
When you leave your home or land to the Bainbridge Island community through the Land Trust, you are giving an invaluable gift, for everyone, forever. This can be done through your will or, even more beneficially, right now, in an arrangement that allows you to live in your home for the rest of your life and possibly realize tax benefits.
Land Donations
By making this gift now, rather than through your will, you may be eligible to receive an immediate income tax deduction for what is called the “present value” of the Land Trust’s future right to receive the property. The present value is based on both age and the “discount rate” set by the IRS, which is extremely low right now, and increasing the value of your tax deduction. The older you are, the more of your home’s value can be deducted, and these deductions can be spread over five years.
One example: suppose that Ed, age 77, donates his $500,000 home to the Bainbridge Island Land Trust, but wishes to live in it for the rest of his life. According to the life expectancy tables, men aged 77 are expected to live, on average, about another 10 years. Since interest rates are low these days, the IRS uses a “discount rate” of around 2% per year (this changes monthly), so Ed would be able to deduct a little more than $400,000 from his taxes. If Ed were older, he could deduct more.
It is unlikely that Ed could take the entire $400,000 deduction in a single year, since charitable contributions are limited to 50% of adjusted gross income, which is close to total income for most retired folks. However, whatever part of the deduction Ed doesn’t take the first year, he can carry forward for up to 5 years so he can take a deduction of $400,000/6 or about $66,000 per year, over 6 years. If that is still more than half his income, he can give a partial interest in his home for 6 years and then give the rest at the end of that time, or leave it to the Land Trust in his will.
To find out the precise tax benefits of leaving your home to the Bainbridge Island Land Trust, please talk to an attorney who specializes in wills and estates. The Bainbridge Island Land Trust can supply a list of local attorneys for you to interview.