Question

1. Axel owns an empty building lot that he purchased for $57,000 in 2002. The lot is located next to MSU and is now valued at $145,000. If Axel sells the lot to the MSU Foundation for $87,000, how much, if any, will he be able to claim as a charitable contribution? What, if any, will he have to report as a capital gain?

2. Richie is beginning to implement his estate plan as he gets older (just turned 70, with a 17-year life expectancy). He has chosen to work with the Mayo Clinic Foundation to establish a Charitable Remainder Annuity Trust (CRAT). He will fund the trust with $800,000 worth of Tech-write stock. Richie will receive an annual annuity payment from the trust of $40,000. Assume the current 7520 rate is 4%. What is the charitable deduction Richie may claim?

3. Benjamin owns 60 acres of farm land on the edge of Maple Grove, currently valued at $440,000. He is expecting the land will appreciate significantly in the next 10-15 years as commercial development expands his way. Benjamin is also a staunch supporter of the March of Dimes. As such, he has donated the land to a Charitable Lead Annuity Trust (CLAT) benefiting the March of Dimes. He named his son, Matt, as the remainder beneficiary of the trust. The trust has a term of 12 years and will pay the March of Dimes income generated from the land, $24,000 per year. At the end of 12 years, the trust terminates with proceeds payable to Matt. Assuming the 7520 rate is 2%, will this CLAT create a charitable deduction for Benjamin? Will it create a taxable gift for Matt? What will the remainder value be if the net increase in value averages 13% per year?

Answer 1

1.Axel sells the Building Lot he purchased in 2002 to MSU foundation, an educational institute. He can claim charitable deduction for the full fair Market value of the Building from Taxable Income. Since the property is held for more than a year and sold sold to MSU Foundation, he needs to pay Long term Capital Gain tax @ 0%, 15% or 20% depending upon his Income bracket.