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Gifts of Appreciated Securities
(or other appreciated assets)
Goal: Avoid capital gains tax on securities sale
Benefit: No capital gains tax and charitable deduction based on fair market value
The gift of an appreciated asset, often common
stock or mutual fund shares, is a valuable way to make a contribution to a charitable
organization and receive tax benefits based on the value of the asset(s). Suppose
Richard and Terri had 300 shares of XYZ Corporation that they purchased at $15
a share some years ago. The current value in today's market is $36 a share. If they sold the stock in the market, they would have a taxable, long-term capital
gain on the difference between their cost and what they would receive from the
sale ($36 minus $15 = $21 capital gain per share. 300 shares X $21.00 = $6,300
in capital gains).
Richard and Terri could sell the stock, pay the tax on the capital gain, and
either keep or donate the proceeds. If, however, instead of selling the stock,
they gave the 300 shares to charity, they would not incur any capital gains
and would be able to deduct the current value (300 shares X $36 = $10,800) on
their tax return as a charitable gift. By donating the stock, the charity receives
a larger gift than it would receive if Richard and Terri first sold the stock
and then donated the proceeds after deducting the capital gain taxes. Also,
Richard and Terri receive a greater tax deduction by giving the stock directly
to the charity and avoiding the capital gain tax.
Another value to using appreciated securities instead of an anticipated gift
of cash is to increase the cost or basis value of securities you want to hold
for further appreciation. Suppose you hold a number of shares of a startup company
and have a cost basis greatly below the current market value. Anything you sold
would be subject to capital gains. But, suppose you gave some or all of the
stock to charity and then purchased the same number of shares at the current
value in the marketplace. It would be similar to giving that amount of money
to charity. But instead, you now have shares of stock with a current basis and
you have significantly reduced your future capital gains liability on those
shares. And, you have a charitable gift deduction equal to the current value
of the stock you gave.
While the gift of appreciated assets often is stock, other marketable assets (called tangible personal property) can be utilized as gifts with the possibility of tax benefits. These are assets such as real estate, antiques, coin or stamp collections, and art. However, these are reviewed on a case-by-case basis. For more information about gifts of any appreciated assets, please contact us so we can respond to your specific needs.
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