There are, however, some good gift arrangements for which little or no tax benefits are available. “Good” here means good for the donee organization.
Let’s consider some specific examples.
Donor contributes a valuable painting she painted: Donor’s income tax charitable deduction is limited to her cost basis in the painting (usually, cost of materials), which may be negligible. But the value to the donee may be immense. Same goes for a royalty-producing copyright, such as a copyright to a popular song.
Donor contributes a patent on one of his inventions: Donor gets a federal income tax charitable deduction for a declining percentage of the patent royalties the donee receives over the next 10 years. The more royalties, the better the outcome for the donee and the better the tax outcome for the donor.
Donor gives Charity rent-free use of space in a building Donor owns: This gift may be valuable to the donee, but it is tricky from a tax standpoint.
- Donor gets no federal income tax charitable deduction for this gift (because of the partial interest rule).
- But Donor has made a taxable gift for federal gift tax purposes. This may or may not be a problem for Donor, depending on her overall gift and estate tax situation.
Donor sets up a non-charitable remainder trust that is to provide for himself and his immediate family: When the trust terminates years in the future, whatever remains in the trust will go to Charity.
- This may or may not be a great gift arrangement from Charity’s standpoint, in terms of gift counting.
- But it’s better than nothing.
For more information on these types of gifts, check with your SHARPE newkirk rep.
By Jon Tidd, Esq