Selling a Business or Investment Property? Learn about the Zero Tax Sale

By Chris Askin CSPG, CFRE
President and CEO

Every day people pay taxes they don’t need to pay. Entrepreneurs enter into a deal to sell a business they developed, an owner of an investment property receives an unsolicited but attractive offer, a real estate agent receives a call from a client inquiring about possibly listing a property. But it is rare for tax planning associated with these events – if there is any tax planning at all – to include charitable giving.

Many times I have been contacted by the sellers who turn out to be quite philanthropic, and who wish to start a charitable fund. They tell me how they generated the funds and I try not to wince as I ask them if they paid any capital gains. When someone is setting up a charitable fund, the last thing you want to do is diminish the good feelings they have for their charitable plans.

Yet the bottom line is that they gave away money to the government, and they likely have less in their pocket and/or less for charity. I regularly meet with potential clients or their professional advisors, who are considering combining a charitable gift with their upcoming sales. They all have charitable intent to varying degrees, and depending on that intent, avoiding some or all of the capital gains tax is a definite consideration.  

For a person who was planning to use some of the proceeds to benefit charity anyway, this is a no-brainer. Unfortunately, seemingly few people realize that they can do this!

Let’s use an example of a couple who owns a property with an estimated sale value of $3 million, with $1 million in basis. If they sell the property, they’ll pay 20% on $2 million gain, or $400,000. By using a simple software program, I can estimate that by gifting 28.8% of the property to the Community Foundation prior to the sale, they will avoid all taxes. They will avoid $115,108 of capital gains tax and have (based on their tax bracket) a gift deduction of $284,892. The end result is $2,136,691 in their pocket and $863,309 in their charitable fund. It is true that they would have had a bit more in their pocket if they had not made the gift, but then again, they would have had to pay the $400,000 in capital gains, and that is a big number. I use these figures as examples. While the actual numbers may vary due to each donor’s tax brackets, the benefit can certainly be significant.

For a person who was planning to use some of the proceeds to benefit charity anyway, this is a no-brainer. Unfortunately, seemingly few people realize that they can do this! So please help spread the word. If you are the person who tells a friend or colleague at the right time, you will indeed become their hero. Our experienced professionals at the Community Foundation have the expertise to help with such transactions, which can be combined with funding a charitable trust, establishing a family foundation, setting up a scholarship fund, and many other ideas.  

I encourage you to us give a call and let us help answer your questions. It’s what we do, and you will love working with experts who are so down to earth as our Philanthropic Services team. Call us at (775) 333-5499 or email us at info@nevadafund.org.

The Community Foundation of Northern Nevada is strengthening our community through philanthropy and leadership by connecting people who care with causes that matter.

Sept. 18, 2021