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Clyde Mathews is a retired banker, who is 79 years old. His
wife, Bonnie, is 73. They wish to sell their vacation cottage,
but want to avoid capital gains on the sale. Therefore, they've
decided to use the cottage to set up a Gift Annuity with Radio
Kansas. They are in the 28% tax bracket.
Clyde and Bonnie paid $75,000 for the cottage. They just had
it appraised at $150,000.
In the case of appreciated property such as vacation home,
Radio Kansas will normally give a receipt for 20% of the appraised
value to the donor, and then create the Gift Annuity for the
remaining 80%. This allows for some flexibility between the
appraised value and the actual price when Radio Kansas sells
the property. It also helps pay for the cost of the sale.
The Mathews will receive an immediate tax deduction for the
$30,000 donation value of the direct portion of the gift,
which could mean a tax savings of $8,400, within IRS allowances
for the year. They will also bypass capital gains on $15,000
of the direct portion of the gift, with a possible savings
of $2,200. Radio Kansas will then execute a $120,000 Gift
Annuity. With the ages and life expectancies of both in mind,
the standard rate determined by the American Council on Gift
Annuities would give them a 6.4% return each year for as long
as one of them lives.
From the annuity, they will be able to partially bypass an
additional $60,000 in capital gains resulting in a possible
savings of $3,436. They will also receive a current tax deduction
of $45,817 which may save them $12,829 more on their taxes.
They will receive an annual payment of $7,680 for as long
as one survives. Of that payment, $2,376 will be tax free
for the first 16 years.
On average, the Mathews would be expected to receive a total
of $132,096, for an effective payout of 8.4%, while Radio
Kansas is expected to retain the full value of the initial
$150,000 gift.
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All of these figures
are estimates, offered here strictly as an example. Radio
Kansas cannot offer tax or legal advice. Please consult a
tax advisor for final figures in your specific situation.
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