Almost everyone has seen substantial appreciation in real property values over the course of the last decade. Even with the housing market slowing, most have still seen real property values double or triple. One problem however, is that this appreciation has merely been “on paper.” Even with capital gains tax rates at a historic low, the financial benefits from the sale of highly appreciated real property doesn’t quite look the same after taxes.

One way to extract the equity from appreciated real property (without taking out a mortgage or entering into a reverse mortgage) involves some creative charitable planning techniques that can provide lifetime income streams and sizeable charitable income tax deductions.

Some of these techniques involve establishing a charitable gift annuity (“CGA”) or charitable remainder trust (“CRT”) whereby a donor transfers the highly appreciated real property to a CGA or CRT in exchange for a lifetime annuity (income stream). Another technique for owners who do not want to give up the right to use and/or occupy a residence involves a gift of a residence to charity with a retained life estate in the owner.

In each of these techniques, the owner will generally receive a charitable income tax deduction based on the value of the remainder interest in the real property that will eventually pass to the charity. Charities are happy to receive the future donation and often work with donors and their advisors in establishing these structures.