God and Caesar
By Levi Miller
“It’s a great way to avoid capital gains tax” Leon waved his arms expansively, then continued. “When I purchased that first fixer upper, I was concerned about the tax I would owe when I sold it. But then my accountant told me that a 1031 exchange would avoid the tax. I sold that first house and purchased a second one. That’s how I’ve been avoiding taxes for the last 15 years. I haven’t paid capital gains tax even once.”
Mervin spoke up: “I should ask my accountant about that too,” “I have been paying the tax as I went. The only thing that bothers me with each house I sell are the taxes I owe”. Then as an afterthought he added, “of course, I guess, at least that means I’m making money.”
***
20 years later
The accountant rested his elbows on the smooth desktop. “Mervin, I know that you avoided the tax on all those houses you flipped over the years. That’s a really good way to do it as long as you continue. But now that you want to sell everything and retire, you will owe tax on all that accumulated gain.”
“But where did the tax come from? I thought a 1031 exchange avoids the tax.” Mervin shook his head in disbelief as he ran his fingers through his already tousled hair.
“Yes, that is correct. You did avoid the tax when you did the exchange. But the tax didn’t go away. You simply kicked it down the road.”
“So, what can I do now, other than just paying the tax?”
“As I see it you have three options; you can pay the tax, you can keep the properties until you pass away so your heirs would receive it with a stepped-up basis, or you can donate some to charity to reduce your tax liability. Which option would you like to pursue?” The accountant leaned back in his soft leather chair and took a sip of coffee as he waited for Mervin’s response.
Well. . . I don’t want to keep it until I die. The whole point of selling the properties was so I wouldn’t have that responsibility anymore. And. . . well. . . I just. . . just can’t swallow the thought of paying that much in taxes. I have always tried to be a good steward, and. . . well, that doesn’t seem like good stewardship.”
Mervin’s gaze was drawn to the bright sunshine dancing through the window. Outside, ducks were gliding across the pond and the singing of birds in the tall oaks spoke to all being well. But Mervin didn’t seem to get any consolation from the scene. He turned back to the accountant. “Wait, what did you say about donating some to charity to avoid the tax? How would that help with my tax problem”?
The accountant leaned forward as he steepled his fingers. “I said you could donate property to charity to reduce your tax liability”.
“But. . . how can that reduce my tax liability”?
“Let’s create a hypothetical scenario to help you understand it, okay”?
Mervin was all attention now. “Sure”.
“Let’s say you purchased a property for $200,000. You then remodel the house and add an addition which is another $200,000. You owned the property for over one year, then sell it for $600,000. You end up with a net gain of $200,000, which is taxable”. The accountant paused as he took another sip of coffee. “Now, if you donate a portion of the property before it’s sold, you could potentially eliminate the taxes”.
“But how’s that possible? There’s still a gain of $200,000 on the property, right?
The accountant chuckled as he saw the confusion on Mervin’s face. “The portion you donate doesn’t pay tax when it sells. On top of that, you get a deduction for the portion you donated. So, by donating before the sale, you avoid tax, plus you reduce tax with the deduction. That is how you can get ahead of your tax liability”.
“But that seems complicated. Wouldn’t it be the same if I sold the property then donated cash to receive the deduction”?
“No, if you sell and donate cash, you only reduce your tax liability be the donated amount. By donating a portion of the property, you reduce your tax liability the same as the cash donation, but you get a deduction on top, effectively reducing your liability twice”. The accountant paused as he let what he had said sink in.
“And it’s not that complicated. You don’t survey a portion off. You make the transfer on the deed. It is similar to when two brothers go together to buy a property. Both of their names are on the deed by percentages of ownership. In this case the other owner is the charity”.
Mervin sat up as he began to understand the process. “This seems like a good option because I am interested in donating a portion of my gain anyway. Why not do it in a way so more goes to charity and less to the tax man”?
The accountant chuckled at Mervin’s excitement. “You got it”.
***
In todays inflated real estate market you may face significant capital gains tax when you sell a property, especially if you owned it for a number of years. You may also struggle to understand God’s will in relation to a large increase to your bank account. Possibly the greatest source of discomfort arises when you realize how much will go to taxes.
Often people tell us they just want the money going to a good cause. When they hear there is a way of channeling money that would have gone to the IRS to needs in their church or around the world, they are excited, even if it means less total money goes to their bank account.
You may find yourself in a situation similar to the hypothetical story above. If so, there are ways to reduce to eliminate your tax and divert it to help Gods people.
There are several points to keep in mind when considering a gift of real estate.
- Donating to charity will leave less in your bank account.
Making a donation will always leave less after the sale for you. For example, if you owe $60,000 to taxes, you may be able to eliminate the tax by donating a $160,000 value of real estate. You have $100,000 less in your bank account ($160,000 – $60,000 that would have gone to taxes = $100,000) but you have the satisfaction of money that would have gone to taxes going to charity instead. Another way of saying it; a $160,000 donation only cost you $100,000.
- The donation must be made before a sales agreement is signed.
Once a sales agreement is in place it is too late to make a donation. The IRS considers a purchase agreement the same as the sale and you can’t donate what you have already sold.
- You will need a qualified appraisal
The charitable tax deduction is based on an appraisal, not the sales price of the property. This appraisal has to be completed by an appraiser that is qualified by the IRS standards. Not every licensed appraiser fits this qualification. Speak with potential appraisers if they are qualified to do an appraisal for IRS charitable tax deduction purposes before assuming they are. This can prevent having to do an appraisal twice.
Appraisals can be completed up to 60 days before the donation is completed and there is no time limit after except that it needs to be completed in time to attach to the tax return. However, many people choose to get the appraisal before the donation so they know what percentage they need to donate to arrive at the amount they want to give.
- The taxes can’t always be completely eliminated.
Because each situation is different, it should never be assumed that giving can always eliminate all taxes. Depending on your income and tax level and the amount of capital gain, you may not be able to avoid paying some taxes.
****
Motivations of the heart and other musings:
What is your motivation when you give?
Very wealthy people from the secular world occasionally appear in the news because of some tax evasion strategy they employed. They too, want to avoid tax but usually the primary focus is on increasing their personal wealth. I would like to suggest that if your only motivation in reducing taxes is so you have more in your bank account, then it would be better to do as Jesus said in Matthew 22:21, Render therefore unto Caesar the things which are Caesar’s. . .
Our giving motive matters because it makes the difference between a good and bad steward. Giving is a heart thing and God cares about the heart. Giving to save taxes should be viewed as a way of maximizing our giving to bless the people of God rather than a way of increasing our net worth.
The difference between tax avoidance and tax evasion is a term in prison. One is legal, the other is not. We are thankful to our government for providing tools whereby we can reduce tax liability by giving to charity. While we might not consider everything “charity” the same as the IRS does such as saving a bat in some obscure location, we can still use those tools to increase our giving to the needs around us.
Occasionally people ask me if they are giving enough. I wonder if that isn’t the wrong question. According to the account in Luke 21 when Jesus watched the poor widow through in several small coins, we learn that He is more concerned about how much we keep for our personal enjoyment rather than how much we give. He was saying she gave more than all the rest when compared to what she had left. Thus, we have to grapple with one of the many paradoxes of God’s Kingdom. A man making $1million and giving 50% each year is still giving less than the man with a $50,000 income who gives 10%.
Consider Elon Musk, the wealthiest man on earth at $839billion.[1] Yes, you read that right. His wealth about doubled in the last year. So, let’s say he made $400billion last year. And let’s imagine he gave $20billion to charity. That is an astounding amount, right? But it would only be 5% of his income. And what would he do with the remaining $380billion.
While we can’t even comprehend the wealth of Mr. Musk, it does help us see it through the eyes of God when we begin comparing what is left versus what we give.
We also get the impression that God can do much with very little. Have you ever considered that God may need people more than he needs money? Are you willing to spread the gospel?
What about listening to a homeless man’s story?
Or visiting the lonely elderly couple down the road?
I am not implying you should stop giving as the Lord leads you, but that there are other ways of giving besides monetarily. Multiple studies show that as peoples net worth increases, their compassion and empathy decrease. They are more likely to hand out money but don’t want to be bothered with physically helping. For example, a man may quickly hand a beggar a 5-dollar bill so he can get on with his day. The giving is more out of guilt rather than because of a caring heart.
****
“So, you were able to avoid all your taxes”? Dennis raised himself from the porch railing. Mervin, his father was slowly pushing himself back and forth on the porch glider.
“Yes, all of it. I ended up with much less in my bank account than if I would’ve sold those properties and paid the tax. But now I have the satisfaction of knowing it is helping the poor and needy in other countries. I even use it for our church needs”. Mervin gave the porch floor another kick as he propelled himself backwards.
“But how is that possible? I thought you gave it all to that Foundation. How can it come back to our church”?
“The money went into a fund[2] at the Foundation. But I have them send the money to my church or other charities that I care about”.[3] The glider came to a stop and Mervin leaned forward as he continued. “I can spend years in distributing the funds as needs arise. And do you know what the best part is? I can stay completely anonymous. Deacon Joe has no idea the check he receives from the Foundation is really from me”.
“Wow, that is pretty amazing. So, you are saying you donated a large value to this Foundation and wiped out your taxes? The money then went into this fund? Now you make distributions from that fund, sort of like a bank account for charity? And you can be completely anonymous”?
Mervin leaned back again and gave the floor another kick. “Yes, you’ve got it”.
“But what happens if you died before you distribute all the funds? Will it just sit there?” Dennis looked worried.
“This is where it gets interesting. I also put in my will that some of my estate goes to this same fund. Then I gave the Foundation a list of churches and charities I want everything in the fund to go to. So, once I die, some of my estate will go to this fund. That, along with whatever was still there, if any, will then be distributed to the charities I chose. Pretty nice, isn’t it”?
“But that doesn’t make sense” “Why go to that extra trouble when you could have just named those charities in your will”?
Mervin smiled patiently. “Because if I later change my mind about one or more of the charities, I would have to change my will. This way I just let the Foundation know what I want to change and I don’t have the cost of getting my will changed by an expensive attorney”.
****
Mervin is doing his best to make sure as much of the wealth God has given him is used to further God’s purposes. Eliminating his taxes was one way he increased the help to God’s people.
We read and hear of people with extreme wealth and sometimes we are drawn to pursue wealth ourselves. But we do well to look to the teachings of Jesus to help us understand what good stewardship really is.
And with Gods help, we can.
Therefore be ye also ready: for in such an hour as ye think not the Son of man cometh. Who then is a faithful and wise servant, whom his lord hath made ruler over his household, to give them meat in due season? Blessed is that servant, whom his lord when he cometh shall find so doing. Mat 24: 44-46
[1] According to the March Forbes 2026 billionaire list.
[2] A Donor Advised Fund.
[3] Distribution requests are advisory only. The Foundation has the right to reject a distribution request.
