There are definite tax advantages in giving property that has appreciated in value and has been held long-term.
Here’s how it works:
Tom has 200 shares of ABC Corporation stock that he purchased for $20 a share three years ago. The current value of ABC Corp. stock is $47 per share. If Tom sold the stock, he would have a taxable, long-term gain on the transaction that can be calculated in the following manner:
- $47 – $20 = $27 capital gain per share.
- 200 shares x $27 = $5,400 in capital gains.
Tom could sell the stock, pay the capital gains tax and donate the remaining proceeds to CVCS. If, however, Tom donates the stock to CVCS, he would not incur any capital gain and he could deduct the entire current value of the gift (200 shares x $47 = $9,400) as a charitable gift.
Sell Stock & Donate the Proceeds Donate the Stock to CVCS
Tom’s Capital Gain (15%) $5,400 Tom’s Capital Gain (15%) $0
Tom’s Capital Gain Tax $810 Tom’s Capital Gain Tax $0
Tom’s Tax Savings (33% bracket) $2,834 Tom’s Tax Savings (33% bracket) $3,102
Actual Gift to CVCS = $8,590 Actual Gift to CVCS = $9,400
An income tax deduction is allowed for the full fair market value of the property given. In addition to receiving a charitable deduction for the full fair market value of such a gift, the donor pays no capital gains tax on the appreciation when the gift is made (although the alternative minimum tax implications must be considered). Such a gift is deductible up to 30 percent of a donor’s adjusted gross income. Any excess can be carried over for five additional years.
Donors can elect to deduct a gift of long-term appreciated property at the 50 percent ceiling of their adjusted gross income. However, the donor must forgo the appreciation in computing the charitable deduction. In other words, the deduction is limited to the donor’s cost basis.
A donor considering a gift of property that has gone down in value would be better off selling the property to realize a deductible loss and then contribute the proceeds to charity and obtain a charitable deduction.
