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Tax Research Letter

In: Business and Management

Submitted By MisterBenji
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Redfield and Choi LLP, CPAs
1313 East Main Street
Fullerton, California 92831

March 29, 2013

Hal Mueller
2445 North Vista Drive
Fullerton, California 92838

Dear Mr. Mueller:

In our meeting on March 25, you asked us to research how a particular transaction involving your second house in Rancho Cucamonga, CA would affect your personal income tax for the 2013 tax year. We would like to inform you that the transaction would qualify for a charitable deduction that may reduce your taxable income.

In reaching this conclusion, we consulted the United States Internal Revenue Code (IRC); Internal Revenue Service (IRS) Publication 526, Charitable Contributions; and IRS Publication 950, Introduction to Estate and Gift Taxes.

Facts
The facts as we understand them are as follows: You would like to transfer to a charitable remainder trust (CRT) the title to your second house, allowing you to accomplish two objectives. First, your sister would be allowed to live in the house during her lifetime. The current market rent rate in Rancho Cucamonga is $1,081 per month, or $12,972 per year, but she would not be charged rent. Second, the title would pass to California State University, Fullerton (CSUF) as a charitable contribution upon her death. The current value of the house is $235,145.

Applicable Laws
A donor may be subject to the gift tax when giving a gift. The IRS defines a gift as money or property, or the use of either, that is given without receiving something of equal value in return. A donor is, however, allowed to give each donee up to $13,000 per year in gift value without having to pay the gift tax.

In the year when property is transferred to a CRT, the taxpayer can usually claim a deduction for the future value of that property. The future value is the expected value of the property at the time when that property will pass to the...

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