Case Study: What You Can Do With Real EstateNorm was approaching retirement; he had invested well in real estate and owned two pieces of commercial property located next to each other. One of his properties had a very low cost basis, while the other had a tax basis close to market value. These commercial properties netted him annual earnings of 3 percent.
The financial challenges. Norm wanted to escape the time-consuming demands of property management and desired to make a contribution to a local charitable organization, so he consulted his financial advisor.
The charitable solution. Working with his advisor and a representative of the charitable organization, Norm decided to use his property to fund a charitable remainder trust that would pay him a lifelong stream of income. There was just one problem: He could not fund the trust with real estate encumbered by a mortgage, and both parcels carried loans. The solution involved transferring the mortgage on the low-basis property to the second property and then transferring the now-unencumbered low-basis property to the trust.
Shortly afterwards, Norm sold the mortgaged real estate and the trustee sold the low-basis parcel. Both received the proceeds from their respective properties.
How You Can Benefit
Even though the property in the trust has been sold, Norm receives a distribution each year of 6 percent from the trustdouble that parcel's original income during his lifetime. Other benefits from this transaction include:
- A charitable income tax deduction for a portion of the real estate's value.
- Elimination of up-front, long-term capital gains on the low-basis real estate used to fund the charitable remainder trust.
- A reduction of possible future estate taxes.
For more information about how you can benefit from charitable strategies, please feel free to contact Jackie Peterson at 507-933-7543 or firstname.lastname@example.org.