Planned Giving - Define Your Legacy and Make a Difference!

Planned Giving

With thoughtful planning, anyone can provide for their financial goals and help Jacksonville University continue to be an extraordinary place to learn. Planning may allow you to:
  • Benefit family and friends while providing for the university that is important to you
  • Leave a personal legacy that reflects your values and beliefs
  • Take advantage of possible tax benefits
  • Receive the satisfaction of giving back in a meaningful way
Legacy gifts take many forms, and reasons to include JU in one's financial and estate plan are as unique as each individual, but they share a single purpose: to ensure that Jacksonville University will prosper in the future.

We appreciate the continued commitment of alumni and friends to JU students and thank them for all they do to make our good work possible. We would be honored to assist you, too. JU's success depends on your vision and generosity.
How to Make a Difference at JU
You want to make a difference at JU, but don't know where to begin? Identify your goals and review possible strategies to achieve them.
Read More...
Plan Your Gift At Any Age
Simple Planning Tips to protect your family and support JU too!
Read More...

 

Contact Us
Maria Pellegrino-Yokitis, JD
Director of Major Gifts and Planned Giving
Jacksonville University
2800 University Blvd. N.
Jacksonville, FL 32211
(904) 256-7928
mpelleg@ju.edu
Tax ID: 59-0624412

 

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Sunday February 7, 2016

Case of the Week

Exit Strategies for Real Estate Investors, Part 2

Case:

Karl Hendricks was a man with a golden touch. Throughout his life, it seemed every investment idea that he touched turned to gold. By far, Karl was most successful with real estate investments. It was definitely his passion.

Amazingly, Karl continued to buy and sell real estate at the age of 85. For instance, about three months ago, Karl discovered a great investment property. It was a “fixer-upper” commercial building in a great area. While other nearby buildings sold for over $2 million, the seller needed to sell quickly and was asking just $1 million.

The condition of the building turned many buyers away. It was being sold “as-is.” But Karl was not deterred. He could see great potential with the building and knew it would not take much to get it to market condition. Therefore, Karl swooped in, bought the building for $1 million and instantly hired contractors to refurbish the place.

After three months of hard work refurbishing the building, the place looked like new! In the end, Karl invested $250,000 in the building, bringing his total investment in the property to $1.25 million. One month after the completion of the work, Karl was contacted informally by a company that expressed an interest in the building – a $2 million interest! This was no surprise to Karl. He knew the building was another great buy.

There was one downside to the idea of selling, however. Karl held the property only four months which meant the gain from the sale would be short-term capital gain. In other words, the applicable tax rate would be 43.4%, not 23.8%. Karl cringed at the thought of paying much of his gain to the government. At the same time, Karl knew the real estate market could change directions in the next year. So, although Karl wanted the 23.8% tax rate, Karl did not want to risk holding the property another eight months.

After Karl learned about the benefits of a FLIP CRUT, he eagerly wanted to move forward. It looked like the perfect solution. However, there were still two potential downsides to this plan.

Question:

What was the charitable income tax deduction for gifts of short-term capital gain property? What were the tax characteristic of the FLIP CRUT payouts to Karl?

Solution:

First, pursuant to IRC Section 170(e), Karl would receive a charitable income tax deduction based upon the cost basis in the property, not its fair market value. Section 170(e) does not allow a donor to claim a charitable income tax deduction for a property’s ordinary income element.

In this case, a fair market value calculation on $2 million would produce a tax deduction of $1,360,000. However, due to the short-term capital gain on the property, Karl would instead use $1,250,000 for the calculation. As a result, his tax deduction would be about $900,000. This first bit of “bad news” does not concern Karl whatsoever. Given his estimated AGI over the next several years, he would not have been able to deduct the full $1,360,000 anyhow. On the upside, Karl can deduct the full $900,000 over the next six years. With estimated AGI of $350,000 each year, Karl may deduct up to 50% of his AGI each year or $175,000. The 50% AGI limit applies in this case, not the 30% AGI limit, because Karl’s tax deduction was based on cost basis only.

Next, Karl discovered that the short-term capital gain of $750,000 from the sale of the property might be distributed to him over time. While it was true the FLIP CRUT would not owe any tax, the trust would report the $750,000 of short-term capital gain in tier two pursuant to the four tier accounting rules. Therefore, it is possible that Karl’s future trust payouts may be characterized as short-term capital gain.

Again, Karl was not dissuaded with this information. First, as someone accustomed to lease income, Karl assumed most of his trust payouts would be ordinary income. So, this was not bad news. Second, given the benefit of the 23.8% tax rate on qualified dividends, the trust desired to invest heavily in dividend-paying stocks. As a result of this investment choice, 23.8% type tier one income would flow out prior to any 43.4% type tier two short-term capital gain. This would diminish the amount of tier two income short-term capital gain realized over Karl’s life.

In the end, the positives clearly outweighed the negatives. Karl moved confidently forward and wrote another happy ending to another successful investment outing.

Published February 5, 2016
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Previous Articles

Exit Strategies for Real Estate Investors, Part 1

Dying to Deduct, Part 3

Dying to Deduct, Part 2

Dying to Deduct

Living on the Edge, Part 6

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