John, a long-time farmer, owned 500 acres of farmland purchased decades ago for $500 per acre.
Over the years, the land appreciated significantly, with a current fair market value of $15,000 per acre. John planned to sell a portion of the land to fund his retirement but was concerned about the substantial capital gains tax liability due to the low basis.
At the same time, he wanted to support his local community through charitable giving.
John worked closely with the Community Foundation and his team of advisors to develop a strategy that aligned with his financial and philanthropic goals. Together, they decided that John would donate a 30% undivided interest of the farmland to his Donor Advised Fund (DAF) at the Community Foundation. By contributing an undivided interest, John transferred a fractional ownership of the land, allowing the DAF to share in the proceeds of the eventual sale.
This strategy provided several key benefits:
Charitable Deduction
John received a charitable deduction equal to the fair market value of the donated interest, subject to the 30% adjusted gross income (AGI) limitation for gifts of appreciated property to public charities. The deduction could be carried forward for up to five years if it exceeded the AGI limit.
Capital Gains Tax Mitigation
By donating a portion of the land before the sale, John avoided capital gains tax on the appreciated value of the donated interest. This significantly reduced his overall tax liability.
Philanthropic Impact
The proceeds from the sale of the donated interest were directed into the DAF, enabling John to recommend grants to support causes he cared about over time.
This collaborative approach not only allowed John to offset a portion of the capital gains tax but also fulfilled his charitable intent in a flexible and impactful way.
As you advise your clients, this case highlights the importance of integrating charitable planning into asset disposition strategies. If you have a client with highly appreciated non-cash assets, such as farmland, we can help you explore solutions such as undivided interest gifts to maximize tax efficiency and philanthropic impact.
Call us today - our expertise in complex gifting strategies can help you and your clients achieve their goals.
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