ABA Family Legal Guide

Buying and Selling a Home

Tax Considerations

Tax Considerations When Selling Your Home

What is a gift annuity and how does it work?

A homeowner interested in converting home equity into income may want to consider a gift annuity in which he or she donates the home to a qualified charitable institution and is eligible for a tax deduction against taxable income in the year in which the donation is made. In return, the institution provides an annuity to the donor and grants the donor a life estate in the home. This means that the donor may remain in the home for his or her lifetime and is responsible for all taxes and maintenance on the home. At the donor's death, the property becomes the possession of the charitable institution.

This arrangement offers several tax advantages, particularly for homeowners who do not have heirs or who want to reduce the size of their taxable estate. Again, you should consult a financial professional or tax lawyer for more information.