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: Securities, Real Estate, Personal Property and Insurance Policies

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.

Securities

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.

Real Estate

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

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.

Life Insurance Policies

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.