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.
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Plan Your Gift At Any Age
Simple Planning Tips to protect your family and support JU too!
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Monday April 27, 2015

Case of the Week

Exit Strategies for Real Estate Investors, Part 16

Case:

Karl Hendricks was a man with the 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. His most favored tax strategy for buying and selling real estate revolved around I.R.C. Section 1031. In short, Section 1031 allows taxpayers to exchange “like-kind” investment property without the recognition of gain or loss. This tax code provision does not exclude the recognition of gross income indefinitely, but merely defers the recognition to a later date.

Karl currently owns a $2 million building that has significant appreciation. He acquired the building pursuant to a Section 1031 exchange. In fact, this building is his fifth Section 1031 building. Like many real estate investors, Karl just kept “trading up” over the years. As a result, Karl’s basis in his $2 million building is extremely low.

Karl decided he wanted to sell the building, but he did not want to pay the “ticking tax time bomb.” In addition, he did not want do another 1031 exchange because he decided he was ready to retire from the real estate investment business.

Around this time, Karl learned of the benefits of a FLIP CRUT, e.g., income tax deduction, bypass of capital gain and future income stream. He especially liked the fact the FLIP CRUT could simply invest in stocks and bonds, which was something a 1031 exchange would not allow. Thus, after Karl learned about the benefits of a FLIP CRUT, he eagerly wanted to move forward.

Question:

It looked like the perfect solution. However, Karl did have one concern. Specifically, he acquired his building via a 1031 exchange from his son just nine months ago. Accordingly, Karl wonders if there is any required holding period before he could dispose of his 1031 property into a FLIP CRUT?

Solution:

When determining if a holding period applies to property acquired in a 1031 exchange, the relationship of the parties is important. If the parties are unrelated, then there is no specific holding period. (See Part 15 of this series for a full discussion and exceptions to this general rule.) If the parties are related, then the tax code does impose a holding period upon the related parties.

Specifically, Section 1031(f) deals with related party transactions. In an effort to avoid basis "shifting" between family members, Section 1031(f) requires a two-year holding period after a 1031 exchange between related parties. If either the taxpayer or the related party disposes of the exchanged property within two years, then the taxpayer's exchange with the related party becomes taxable. Obviously, this is a very bad result.

In this instance, Karl acquired the 1031 property from his son, a related party. Since then, he has held the exchanged property for only nine months. Thus, he is 15 months short of the two-year holding requirement. Any disposition – by sale or gift – before the two-year period would trigger Karl’s deferred gain. There are three key exceptions to this rule under 1031(f)(2). Unfortunately, those exceptions do not seem to apply to dispositions by gift, e.g., a CRT.

Karl desperately wants to avoid the capital gains tax on his building, and he is very excited about the FLIP CRUT benefits. Therefore, Karl decides to hold onto the property for another 15 months. Once Karl has met the required two-year holding period, he can move forward with his charitable and income tax planning goals.

Published April 24, 2015
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Previous Articles

Exit Strategies for Real Estate Investors, Part 15

Exit Strategies for Real Estate Investors, Part 14

Exit Strategies for Real Estate Investors, Part 13

Exit Strategies for Real Estate Investors, Part 12

Exit Strategies for Real Estate Investors, Part 11

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