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GiftLaw Pro Home   >  Chapter 5 - Difficult Property Gifts  >  5.1 Debt  >  5.1.1 Five & Five Rule on Debt  >  Basic Quiz

Basic Quiz - 5.1.1 Five & Five Rule on Debt

1. A charity may receive title to indebted property and make payments on the debt to defend its position and title.
           
2. The amount of the mortgage or lien on encumbered property acquired by a charity is indebtedness even if the charity does not formally assume the debt obligation.
           
3. If a charity owns property with an acquisition indebtedness, the income earned by the debt-financed property will always subject the charity to unrelated business taxable income.
           
4. If the donor passes the "five and five" test, then the charity may receive and sell the property without payment of any unrelated business income tax.
           
5. If a donor transfers property subject to a debt to charity, there is a bargain sale.
           
6. When a donor transfers encumbered property to a charity, the equity in the property will produce a charitable deduction and release of the indebtedness will not be taxable.
           
7. If the debt is a very high percentage of the total value of property transferred to charity, the tax paid on relief from the debt may exceed the tax savings on the gift portion.
           
8. A donor can transfer debt-encumbered property to a unitrust but cannot transfer debt-encumbered property for a gift annuity.
           
9. The transfer of debt-encumbered property in exchange for a charitable gift annuity is a double bargain sale.
           
10. With a gift of appreciated property that is encumbered, the donor will recognize gain on the difference between the face value of the debt and the prorated basis.