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Giving Stock Is Tax-Wise
Why would I want to give stock instead of cash?
You receive a double benefit from contributing long-term appreciated stock: You receive an income-tax charitable deduction for your gift, and you avoid paying capital-gain tax on the paper gain.
My stock is worth more than I paid for it. Wouldn't I get a higher deduction if I gave cash?
As long as you have held the stock for more than 12 months, you can deduct its full fair-market value at the time of your gift regardless of how much you paid for it. If, for example, you donate publicly traded stock valued at $40,000, purchased several years ago for $10,000, your deduction will be the full $40,000 value.
Can I deduct the full amount in the year I make the gift?
That depends on the size of your gift and the amount of your adjusted gross income (AGI). With gifts of long-term appreciated stock, your charitable deduction is limited to 30% of your AGI. Assuming your only contribution is the $40,000 in stock and your AGI is $100,000, your deduction will be limited to $30,000 for the year of your gift.
Will I lose the deduction amount that I can't use because of the 30% limitation?
The unused portion can generally be carried forward and deducted for up to five additional years. In the example above, you could deduct the remaining $10,000 of the deduction in the next year, assuming your AGI and other gifts are at levels that permit the deduction. (Current gifts are deducted before unused deductions carried over from prior years.)
Can I ever deduct more than 30% for gifts of long-term appreciated stock?
Yes. In special cases, you can choose to deduct such gifts up to 50% of your AGI. However, there is a trade-off for increasing the limit. Your charitable deduction will be limited to your cost basis, so you will not be able to take a deduction for the appreciation element of your investment. It may be worth considering this special deduction if the appreciation element of your investment is not large.
What effect does a charitable deduction have on my taxes?
The charitable deduction reduces your federal income-tax liability. The tax savings generated by a charitable deduction depend on your marginal tax bracket. If you are in the 32% bracket, for example, a $40,000 deduction will save you $12,800 in taxes ($40,000 x 32%). Ignoring any other savings, this will reduce the after-tax cost of your $40,000 gift to $27,200 ($40,000 - $12,800).
Can I expect other tax savings when I make a gift of long-term capital-gain securities?
Yes. As mentioned above, you obtain a double benefit when you make a contribution of appreciated stock. In addition to the charitable deduction, you also avoid capital-gain tax on the stock's appreciation.
For example, if you are in the 32% tax bracket and you sell for $40,000 a block of securities that cost you $20,000, you will pay a capital-gain tax of $3,000 on the $20,000 appreciation at the 15% capital-gain tax rate ($20,000 x 15%). If, however, you contribute the assets to The Community Foundation, the capital-gain tax savings combined with the $12,800 in tax savings from the charitable deduction will reduce your after-tax cost of the $40,000 gift to $24,200 ($40,000 - $12,800 - $3,000). |
