Real Estate Tax Attorney here. Your client wants to donate real prop to charity when he dies, there are no reasons for him to sell it now. Give it to the charity upon his death. Why your idea of a 1031 exchange. The costs of that transaction [brokerage, legal, possible financing costs are pointless and unnecessarily expensive] The value of the intended gift will be diluted without any reason I can concept. 1031 would not be used here unless there is some other reason to change the nature of the underlying realty. All that will happen with a 1031 to perhaps NNN setup is that there will be less for the charity and more for those the effect the 1031.. He pays no tax. They pay no taxes, even if they sell it when they receive it. They are non taxed and they obtain a new "value at date of death" basis in the property
I have a client who wants go give his property when he dies to a charity. I suggested he sell it and 1031 into a triple net TO MAKE MORE FOR THE CHARITY, however he doesn't feel comfortable with triple nets.
How does the 1031 make more for the charity. Income and value would only be decreased after the 1031. The charity will know what to do best with their bequest. Your Donor could make requests as to its use, but I am unclear as to the motivations to change the character of the original property. Does anyone know how it would be more beneficial to him to sell it now and WAIT, DID YOU WANT THE GIFT TO BE MADE NOW?? He says he doesn't need more $, but doesn't want to pay the taxes on the gain. THEN JUST MAKE AN "INTER VIVOS" GIFT OF THE PROPERTY. NO TAXES FOR ANYONE. WAIT, EXCEPT YOUR DONOR GETS TO DEDUCT, AS A CHARITABLE DEDUCTION, THE FULL CURRENT VALUE OF THE PROPERTY REGARDLESS OF HIS BASIS. THIS IS 1ST YEAR TAX LAW STUFF. THIS IS THE BEST KNOWN WAY OF DERIVING A LIFETIME DEDUCTION OF A PIECE OF PROPERTY [ART, REAL ESTATE, ANYTHING -- STOCK, BONDS -- ANTIQUES] AT THE VALUE OF THE THING AT THE TIME OF THE GIFT.
In conclusion, do not sell -- capital gains tax, do not 1031 -- diminishes value of gift, and donate now and deduct the full value of the gift when given regardless of the previous donor basis. Get a tax attorney. Good Luck.
"he doesn't need more $, but doesn't want to pay the taxes on the gain." PERFECT
Tell him that you can get him a nice big deduction to reduce any income taxes he would otherwise have to pay in the future.
Feb 9, 2012