Converting Real Estate into Annual Payments

image2

In this case, people can donate real property to their favorite charity and receive a charitable gift annuity (CGA) in return that provides annual income for the remainder of their lives. The annual income is payable to the donor, or a designated beneficiary.


Take Mr. and Mrs. Hudgings, who have owned 10 acres of vacant land near the beach since 1984. They thought they might someday build a second home there, but they never got around to it. The parcel is now valued at $900,000. 


In recognition of the wonderful service a certain nonprofit gave to a family member, the Hudgings transfer the vacant land to the charity.  The charity then enters into a Charitable Gift Annuity agreement with them. In this case, the agreement is a deferred CGA that will commence annuity payments to the Hudgings starting 18 months later.  This gives the charity time to market and sell the parcel of land.  The deferred CGA will pay them an annual income of 6%, or $54,000 for the rest of their lives. They receive an immediate charitable income tax deduction of $443,421, which will be worth $155,197 in income tax savings in their 35% income tax bracket. They did all this without current capital gains taxes, even though there had been considerable appreciation of their property over the years.