Gifts of Residual Interest on Real Estate

Philippians 4: 19 “And my God will fully satisfy every need of yours according to his riches in glory in Christ Jesus.”

A donor may give a charity a residual interest in real estate, typically in a primary residence or a vacation cottage.  The donor retains for himself or herself, and/or for another person or persons, the right to use the property for life or for a term of years.  Then the charity becomes the full owner and may either keep the property or sell it and use the proceeds.  The donor is giving the future interest but retains a present interest.  The charity receives the ‘residual interest’ after the donor passes away or the defined term is finished.  The residual interest in real estate is generally given through a deed registered in the name of the charity showing the life interest.   Generally, the donor will agree to pay all costs of maintaining and insuring the property, in which case the charity assumes no financial liability.  Capital improvements may be allocated between the charity and the person(s) using the property.  Responsibility for expenses should be spelled out in a supplemental agreement between the donor and the charity.

The donation receipt is determined on the value of the property, the life expectancy of the person(s) who will use the property, and the applicable discount rate.  Capital gain in the property is allocated to the value of the residual interest.  The donor will reduce current income tax and be recognized as a present donor.  There is no capital gain if the gift is the principal residence.

When you make a gift-in-kind to the Bishop Budka Eparchial Stewardship Society Inc. (BBESSI):

  • A tax receipt for the fair market value on the day the gift is made will be issued.  The  value is determined by one or more independent professional appraisers.
  • Gifts of property may trigger capital gains tax, but the charitable tax credit for the gift will offset the gain.  Charitable donations up to 75% of your net income can be claimed, as well as 25% of the taxable capital gains resulting from a gift of appreciated capital property.
  • A five-year carry forward on unused donation amounts is permitted.
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