Fred owns land with mineral deposits. He is considering a gift to his favorite charity. Fred asks his advisor about making a gift of the land, while retaining the mineral rights. His advisor explains that structuring the gift this way would be a gift of a partial interest and is not eligible for a charitable deduction. Furthermore, in order for Fred to receive a charitable deduction, he must give an undivided interest in the land and the mineral rights. His advisor asks him to consider an alternative arrangement, Fred can meet his philanthropic goals by making a gift of a 25% undivided interest in the land and the mineral rights. While it is only a portion of the property, it is a deductible interest. Fred is very pleased that his gift can make a lasting impact at his favorite charity.
Mary has a home that she is thinking about selling and she would like to donate some of the sale proceeds to charity. She considered a cash gift to charity out of the proceeds of the sale, but realized she would need to pay capital gains taxes on the sale. She asked her advisor for guidance on the best route. The advisor recommends Mary gift a 50% interest in the home to charity, retain the other 50% interest and sell the property in a gift and sale arrangement. She asks if she would be eligible for a charitable deduction on the 50% interest gifted. The advisor explains that the gifted 50% interest qualifies as an undivided fractional interest and she is eligible for a charitable deduction. Mary is also only taxed on the gain for her 50% portion of the home, rather than capital gains on the entire gain in the sale of the home. Mary is pleased with the advisor's plan and proceeds with the gift arrangement.Professional advisors should understand the difference between a partial interest gift and an undivided fractional share when helping donors with real estate gifts. The goals of the donor may vary and care should be taken when a donor intends to make a donation that will generate a charitable income tax deduction.