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RISE IN REAL ESTATE DONATIONS MEANS NEW FEE OPPORTUNITIES. Presented to: AI Connect Fall Meeting July 23-24, 2013 Hyatt Regency, Indianapolis, IN. Presented by: Chase V. Magnuson, CCIM. Program Content. An overview of the charitable world How real estate equities can be donated

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rise in real estate donations means new fee opportunities

RISE IN REAL ESTATE DONATIONS MEANS NEW FEE OPPORTUNITIES

Presented to:

AI Connect Fall Meeting

July 23-24, 2013

Hyatt Regency, Indianapolis, IN

program content
Program Content
  • An overview of the charitable world
  • How real estate equities can be donated
  • The impact on the Donor and the Charity
  • A look at how MAIs may benefit

Chase V. Magnuson, CCIM Real Estate for Charities chasemagnuson@msn.com

learning objectives
Learning Objectives
  • After completing this training, participants should be able to understand:
    • Benefits to MAIs, Donor, and Charity
    • Types of real estate gifts
    • Business opportunity for MAIs

Chase V. Magnuson, CCIM Real Estate for Charities chasemagnuson@msn.com

overview of the charitable world
Overview of the Charitable World
  • 2,000,000 Charities
  • $310 billion given in 2011
  • Accept real estate for 3% of annual giving
  • 80% of all gifts rejected

Chase V. Magnuson, CCIM Real Estate for Charities chasemagnuson@msn.com

capital wealth in the us
Capital Wealth in the US

Chase V. Magnuson, CCIM Real Estate for Charities chasemagnuson@msn.com

mai s benefits
MAI’s Benefits
  • Normal service fees
  • Consulting fees
  • Annual CRT evaluations
  • Representation of new client (Charity)
  • Public relations exposure
  • National referral opportunities

Chase V. Magnuson, CCIM Real Estate for Charities chasemagnuson@msn.com

benefits for the client donor
Benefits for the Client / Donor?
  • Reduced capital gains taxes
  • Deduction for federal and state taxes
  • Lower transfer expenses
  • Eliminate management responsible

Chase V. Magnuson, CCIM Real Estate for Charities chasemagnuson@msn.com

basic options for donations
Basic Options for Donations
  • Straight / Outright donation
  • Bequest
  • Retained life estate
  • Charitable gift annuity
  • Charitable remainder trust
  • Bargain sale proceeds

Chase V. Magnuson, CCIM Real Estate for Charities chasemagnuson@msn.com

structure of an outright donation
Structure of an Outright Donation

Chase V. Magnuson, CCIM Real Estate for Charities chasemagnuson@msn.com

are you with me
Are You With Me?

Chase V. Magnuson, CCIM Real Estate for Charities chasemagnuson@msn.com

structure of a retained life estate
Structure of a Retained Life Estate
  • Primary or secondary homes qualify
  • Donor must maintain the property, pay property taxes and insurance
  • Option to lease for another source of income or sell remaining interest to charity for lump sum
  • A CGA may be possible additional benefit

Chase V. Magnuson, CCIM Real Estate for Charities chasemagnuson@msn.com

charitable gift annuity cga
Charitable Gift Annuity (CGA)

Chase V. Magnuson, CCIM Real Estate for Charities chasemagnuson@msn.com

charitable remainder unitrust crt
Charitable Remainder Unitrust (CRT)

Chase V. Magnuson, CCIM Real Estate for Charities chasemagnuson@msn.com

slide16

Gift of property

Charitable

Gift

Annuity

Donor

Remainder to

Charity

Income tax deduction

Reduced gains tax

Fixed payments

How a Charitable Gift Annuity Works

  • Donor transfers cash, securities, or other property to the Charity.
  • Donor receives an income tax deduction and may save capital gains tax.
  • The Charity pays a fixed amount each year to Donor or to anyone Donor names for life. Typically, a portion of these payments is tax-free.
  • When the gift annuity ends, its remaining principal passes to the Charity.

Chase V. Magnuson, CCIM Real Estate for Charities chasemagnuson@msn.com

summary of cga benefits
Summary of CGA Benefits

5.2% Charitable Gift Annuity

ASSUMPTIONS:

Annuitants 70

70

Principal Donated $100,000

Cost Basis of Property $20,000

Annuity Rate 5.2%

Payment Schedule monthly

BENEFITS:

Charitable Deduction $26,214

Annuity $5,200

Capital Gain Income $3,598

Ordinary Income $1,602

Total reportable capital gain of $60,203.20 must be reported over 16.4 years, until all of the gain is reported. After 16.4 years, the portion of the annuity that was capital gain becomes tax-free.

After 20.5 years, the entire annuity becomes ordinary income.

Chase V. Magnuson, CCIM Real Estate for Charities chasemagnuson@msn.com

comparison of benefits
Comparison of Benefits

Chase V. Magnuson, CCIM Real Estate for Charities chasemagnuson@msn.com

tax implications
Tax Implications
  • Individual donor
  • Corporate donor
  • Sub-chapter S
  • Carry forward rules
  • Appraisal rules
  • Qualified gifts (capital gains properties)

Chase V. Magnuson, CCIM Real Estate for Charities chasemagnuson@msn.com

how might the charity benefit
How Might the Charity Benefit?
  • Cash proceeds from sale of the asset
  • Income stream from leases
  • Joint venture profits
  • Exchange opportunities
  • Ownership of office facilities

Chase V. Magnuson, CCIM Real Estate for Charities chasemagnuson@msn.com

any questions
ANY QUESTIONS?

Chase V. Magnuson, CCIM Real Estate for Charities chasemagnuson@msn.com

how to convert equity
How to Convert Equity
  • Cash
  • Cash and carried financing
  • 1031 exchanges (partial)
  • Joint ventures

Chase V. Magnuson, CCIM Real Estate for Charities chasemagnuson@msn.com

charities annual holding cost
Charities Annual Holding Cost
  • Property taxes
  • Property and casualty insurance
  • Staffing time
  • Maintenance
  • Lost investment income

Chase V. Magnuson, CCIM Real Estate for Charities chasemagnuson@msn.com

time for staff to manage
Time for Staff to Manage
  • Accounting for asset
  • Grounds and building maintenance
  • Collection of rents
  • Compliance with city ordinances

MAIs HELPING PEOPLE!!!

Chase V. Magnuson, CCIM Real Estate for Charities chasemagnuson@msn.com

what happens at the closing of the sale of the donated property
What Happens at the Closing of the Sale of the Donated Property?

Title Company divides funds:

  • All normal closing costs paid including commission
  • Donor or Charity fund the gift arrangement
  • Reimbursement of funds used to obtain reports and consulting services

Chase V. Magnuson, CCIM Real Estate for Charities chasemagnuson@msn.com

what we have discussed
What We Have Discussed
  • Benefit to charity
  • Types of real estate gifts
  • Business opportunity for MAIs

Chase V. Magnuson, CCIM Real Estate for Charities chasemagnuson@msn.com

slide27
Fact…

Each year Americans give charities $310 billion in donations, less than 3% is in real estate, although 26% of the nation’s wealth is represented by real estate.

For charities at any level the opportunity for carving out a niche in this market is incredible!

Chase V. Magnuson, CCIM Real Estate for Charities chasemagnuson@msn.com

new opportunities to serve your clients
Thank you!!!NEW OPPORTUNITIES TO SERVE YOUR CLIENTS!

Chase V. Magnuson, CCIM Real Estate for Charities chasemagnuson@msn.com