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GiftLaw Pro Home   >  Chapter 2 - Major/Current Gifts  >  2.1 Bargain Sale  >  2.1.2 Gift of Mortgaged Property  >  Basic Quiz

Basic Quiz - 2.1.2 Gift of Mortgaged Property

1. A gift of debt-encumbered property to a charity is classified as a bargain sale.
           
2. Donors who transfer debt-encumbered property to charity must pay ordinary income tax on the amount by which the debt exceeds the donor's basis in the property.
           
3. If a donor refinanced last year, a charity can sell debt-encumbered property within one year of its acquisition without paying any taxes.
           
4. For gifts of property to qualify for the "5 and 5" test, the debt-encumbered property must have been held by the donor for five years and the debt must also be at least five years old.
           
5. If the "5 and 5" test has been met, the charity must sell the property as soon as possible to avoid unrelated business income tax.
           
6. If the donor has not held the property for five years or the mortgage is not at least five years old, the charity will be unable to accept the property.
           
7. Even though the donor has to recognize income on the debt relief, it may be possible for the tax savings on the gift to charity to offset the taxable gain on the relief of indebtedness.
           
8. If the debt is against both the property and the owner personally, the debt is called non-recourse.
           
9. A donor will realize greater tax savings for a gift of debt encumbered property if the debt is smaller in relation to the value of the property than if the debt is larger.
           
10. When a donor transfers appreciated debt-encumbered property to charity, he or she may use the tax deduction up to 50% of adjusted gross income.