The Community Foundation
of the Jewish Federation of Orange County (CFJFOC) can help create a gift plan
that will best express how the donor desires to benefit the community and fulfill
personal financial goals. The donor has the ability to: - Build a brighter
future for the community
- Provide life-long income
- Achieve a higher return
on low-yielding assets
- Reduce or eliminate taxes on capital gains
- Generate
a substantial federal income tax deduction
- Eliminate or reduce federal estate
taxes
Outright
gifts are gifts of cash, securities, or property given during one's lifetime and
the gift may be used immediately. When the donor chooses a specific purpose for
which the gift will be used, e.g., scholarships or programs for seniors, or the
specific institution to receive the gift, then he or she has made a "restricted"
gift. The outright gift earns an income tax deduction in the year that it is given.
Cash: A gift of cash is easy to complete and is not subject to gift or estate
taxation. A contribution postmarked in December is deductible for that tax year
even if the Community Foundation receives it in January, provided the account
against which the check was written had sufficient funds to cover it in December.
Gifts of cash are fully deductible up to 50% of adjusted gross income (AGI).
If the cash gift is large enough to exceed 50% of AGI in the year of the gift,
the remaining amount of the gift may be carried over and used as a deduction for
up to 50% of AGI until the gift amount is exhausted or up to five years, whichever
comes first. The gift amount is removed from the estate.
Example: Mrs. Gould's
adjusted gross income is $50,000 this year, and she contributes $35,000 to the
Community Foundation. She may deduct $25,000 this year and carry forward $10,000
to deduct next year.
Gifts
of appreciated stocks
or bonds have the same positive benefit to the Community Foundation as a gift
of cash, however they are usually more beneficial to the donor than a gift of
cash.
With a gift of marketable securities that have been held longer than
one year, the charitable deduction is equal to the full fair market value (FMV)
of the securities. The FMV is determined by the average of the high and low sales
prices of the stocks on the gift date. The gift may be applied as a deduction
up to 30% of AGI with the same five-year carry forward provision and gift and
estate taxation are avoided. Additionally, there is no capital gains tax on the
appreciation in the value of the securities. This can be a major benefit if the
securities have been held over a number of years.
Example: Mr. Levy has
a $90,000 AGI this year and donates long-term (held for over a year) stocks. He
paid $10,000 several years ago for the stocks and they are now worth $50,000.
On the gift date, the stock traded on the New York Stock Exchange at a low of
$49,000 and a high of $51,000. Whether the Community Foundation sells the stock
or holds on to it does not change the valuation on the gift date. Mr. Levy may
deduct $27,000 this year and carry over $23,000 to deduct next year. He also avoids
capital gains taxes on the $40,000 appreciation in the stocks that he would have
been subject to if he had sold them himself.
The rules for gifts of real estate are essentially the same as for
gifts of securities. Almost any type of real estate may be contributed, including
undeveloped land, farms, commercial buildings, vacation homes, or a residence.
The donor receives a charitable deduction for the full fair market value of the
unencumbered real estate and may apply the deduction up to 30% of AGI in the year
of the gift with the five-year carry-over provision. There are no capital gains
or gift taxes on any appreciation in value and estate taxes are reduced since
the property has been removed from the estate.
Potential gifts of real estate
are evaluated by the Community Foundation on a case-by-case basis before acceptance.
The Community Foundation must consider insurance, environmental, maintenance,
property tax liability, and other potential risk factors, including special tax
provisions, which apply to certain types of real estate. .
(NOTE: See the Deferred
Gifts section for other ways to make gifts of real estate: life estate agreements,
charitable remainder trusts and bequests.)
Bargain sales are sales of property, such as securities or real estate,
to the Community Foundation for less than the full fair market value. A bargain
sale consists of a sale portion and a gift portion. Usually, the Community Foundation
pays an amount equal to the cost basis of the asset. This way the donor is able
to recover the original investment. A portion of the appreciation of the asset
is considered a gift to the Community Foundation, and the donor receives a tax
deduction for this amount. Taxes are owed only on the part of the gain attributable
to the bargain sale. The gain to be recognized is determined by dividing the selling
price to the Community Foundation by the fair market value, then multiplying that
result by the total gain in value.
Example: Mr. Schwartz owns real estate
recently appraised at $100,000. He bought the land many years ago for $20,000.
He offers to sell the land to Community Foundation for $20,000. The Community
Foundation agrees to this bargain sale. The results are as follows:
1.
Mr. Schwartz receives $20,000 from the Community Foundation; 2. He can take a
charitable contribution deduction of $80,000 (the appreciated portion, which he
is giving to Community Foundation; 3. He must report a $16,000 capital gain, based
on the formula above ($80K x $20K/$100K = $16K)
His federal capital
gains tax will be no more than $16,000 x 20% (his maximum federal capital gains
tax rate) = $3,200.
Two
forms of life insurance are typically donated, paid-up whole and universal life
insurance policies, and newly issued whole and universal life insurance policies.
A paid-up policy has a cash value that may be used immediately, if necessary,
by the Community Foundation.
Taking out a new whole life or universal life
insurance policy is one way to make a significant gift. The policy may be structured
so that premiums are paid for approximately ten years and each year's premium
payment is tax-deductible.
Newly issued whole and universal life insurance
policies usually have little or no cash value. Therefore, they provide no benefits
until significant cash value builds within the policy or the insured passes away.
For all whole and universal life insurance policies, the Community Foundation
should be named as both owner and beneficiary. A tax deduction is allowed equal
to the lesser of the replacement cost or the cost basis of the policy.
Future
premium payments are also tax-deductible. Payments in the amount of the premium
should be paid to the Community Foundation. The Community Foundation will then
pay the insurance company premiums.
Even though term life policies do not provide
a charitable income tax deduction the Community Foundation can still be named
as a beneficiary of the term policy.
If a person simply makes the Community
Foundation a beneficiary of a life insurance policy, no income tax deduction is
allowed. However, upon the death of the insured, the policy proceeds going to
the Community Foundation provide an estate tax charitable deduction.
