Charitable Gift Types

Taxation of Gift Annuities and Deferred Gift Annuities

A portion of each annuity payment is excluded from income as a return of principal; the rest of the annuity payment is taxed as ordinary income.(1)  If your projection runs beyond the life expectancy of the annuitant(s), previously tax-free income is taxed as ordinary income.  If the donor qualifies to report the gain that results from the establishment of the annuity over the donor's lifetime, part of the excludable portion will be taxed as capital gain until all of the gain has been reported.(2)  Capital gains tax is assessed at the lesser of the rate you enter for the beneficiary's incom

Bequest

A bequest is an irrevocable transfer by will of securities, real estate, tangible personal property, or other assets from the deceased to an individual or charity. Donors typically make outright bequests to charity, but they can also make them in the form of a planned gift. For bequests to charity, the donor's estate earns an estate tax deduction equal to the value of the gift to the charity.

Calculation of Deduction - Bargain Sales

A bargain sale of property is treated as part gift and part sale. The charitable deduction for the gift portion equals the total value of the property, less the total amount of consideration paid by the charity, including any debt to which the property is subject.(1) If you specify that the bargain sale is subject to the reduction rules for ordinary income and short term capital gain property, the charitable deduction is calculated by reference to the cost basis allocated to the gift portion of the bargain sale.(2)

Bargain Sale

A bargain sale is a simple agreement in which the donor sells securities, real estate, tangible personal property, or other assets to a charity for less than their current value. The donor earns an income tax deduction for the difference between the fair market value of the donated assets and the sale price, subject to IRS 30%/50% limitations. If the donor bargain sells long-term appreciated property, the donor must report the capital gain that is attributable to the sale portion of the transaction.

Installment Bargain Sale

A bargain sale is a simple agreement in which the donor sells securities, real estate, tangible personal property, or other assets to a charity for less than their current value. The charity pays the donor the sale price in installments according to a schedule the donor and charity agree on. The donor earns an income tax deduction for the difference between the fair market value of the donated assets and the present value of the installment payments, subject to IRS 30%/50% limitations.

Unlocking the Mystery of the Taxation of Charitable Gift Annuity Payments: Part III

In this last of three articles on the gift annuity, we will discuss the taxation of gift annuity payments. Unlike remainder trusts, the taxation of gift annuity payments is determined at the time the annuity is established. This taxation is unaffected by the actual investment performance of the donated assets. Annuities funded with cash make payments that are considered partially tax-free return of principal and partially ordinary income. Donors who fund an annuity with appreciated property must also report a certain amount of capital gain income.

Unlocking the Mystery of the Charitable Gift Annuity Income Tax Deduction: Part I

The bread and butter of planned giving programs for most non-profits is the charitable gift annuity (CGA). The CGA is easy to establish, simple to administer, and leaves a generous gift to charity. This article is the first in a three part series on CGA deductions and taxation.

In this article, we will examine the calculation of the CGA charitable income tax deduction and the variables that affect this calculation. We will discuss how you can maximize your donor's income tax deduction in a low discount rate environment.