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Personal residence as charitable contribution.

Sec. 170(f)(3) allows a charitable deduction for a gift of a remainder interest in real property if the remainder interest is in a personal residence or a farm. The regulations describe a personal residence as any property used by a donor as his personal residence, even though it is not the principal residence; a second or vacation home would qualify.

Making this charitable contribution involves making an irrevocable transfer of a personal residence to a qualified charity, with the donor retaining lifetime enjoyment of the property. The donor may continue to reside in the house for life, while maintaining it and paying the required property taxes; the qualified charity will receive the house on the donor's death. In this way, the taxpayer will realize current income tax benefits as well as estate tax savings.

The regulations provide the necessary tables, formulas and rules for computing the value of the house's remainder interest. The retained life interest may be for one or two lives (e.g., until the death of the second to die of the husband and wife) or for a term of years concurrent with one or more lives. Several subjective decisions are required when computing the value of the remainder interest, such as the property's fair market value allocated between land and structures; the residence's estimated useful life; and the value of the structures at the end of their estimated useful lives. A transfer of property subject to a mortgage may have adverse income tax consequences to the donor and probably should be avoided.

Making the gift is relatively simple; a deed is the only legal document required and a gift tax return may have to be filed. There is no need to create a trust or to appoint a trustee. (In fact, a trust is not allowed.) The donor has the satisfaction of having made a current gift to his favorite charity, with very little change in the enjoyment of the property.
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Article Details
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Author:Grunkemeyer, Mike
Publication:The Tax Adviser
Article Type:Brief Article
Date:Mar 1, 1993
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