Using Appreciated Stock for Charitable Giving
Donating Long-Term Appreciated Securities Can Provide Additional Tax Benefits
- When you donate long-term appreciated securities, you can claim a charitable income tax deduction for the fair market value of the securities on the date of transfer, no matter what you originally paid for them.
- You pay no capital gains tax on the transfer. For example, if the securities orginally cost $2,000 and now have a fair market value of $10,000, you do not pay tax on the $8,000 gain and you may claim a charitable income tax deduction for the full $10,000.
Donating Cash vs. Stock
In this example, you see that donating the stock results in no capital gains tax being paid, a larger itemized deduction, and more money for the charity of your choice. Note, certain federal income tax deductions, including the charitable contribution, are available only to taxpayers who itemize deductions, and may be subject to reduction for taxpayers with AGI above certain levels. Deductions for contributions of appreciated property generally are limited to 30% of the donor’s AGI, however, excess contributions may be carried forward for up to five years.
If you hold securities with a loss, it is usually better to sell first. By doing so, you can take the captial loss for tax purposes and then donate the cash. In most cases, donating appreciated securities can be a cost-effective way to benefit the charities of your choice.
Please consult with your professional advisor to determine your specific situation.
CASH VS. STOCK
Option 1: Gift of $10,000 cash
Option 2: Gift of $10,000 stock
|Initial cost basis of securities/appreciation||Not applicable||$2,000/$8,000|
|Capital gains tax saved or paid, assuming 20% rate*||Not applicable||$1,600|
|Personal income tax savings*
(0.35 x amount donated to charity)
|Net tax savings||$3,500||$5,100|
*Example above assumes 35% tax bracket, a cost basis if $2,000, that the investment has been held for more than a year, and that all realized gains are subject to a 20% long-term capital gains tax rate. This does not take into account any state or local taxes.
No Longer Itemizing? Consider “Bunching” Donations
The advice from many experts is to bunch donations so that your itemized deductions go beyond the current standard deduction amounts for 2021 of $12,550 for individuals and $25,100 for joint filers (adjusted annually for inflation). If you do not routinely exceed the standard deduction, you can get over it by bunching donations of stock to a donor advised fund. If you bunch donations into a donor advised fund, you can claim a charitable income deduction this year, and then distribute the monies to the charities of your choice over several years.