Making a Large Donation with Appreciated Assets
Capital campaigns are re-emerging after COVID-19. With capital calls, “the asks” can be rather significant. Before reaching for your checkbook, consider donating an appreciated asset such as stock. Picking the right asset can potentially maximize the impact of your giving for you and the charity.
For example, you are considering donating around $25,000. Perhaps your first thought is to sell the stock and then take the proceeds to write a check to the charity. It seems like the perfect strategy but understand the underlying tax implications you could have avoided if you gave the security directly to the public charity.
You could have sidestepped capital gains taxes and received a higher tax deduction. The example below indicates the difference in the value of gifting the proceeds of the appreciated security after its sale vs. giving the appreciated security directly.
- Owned the security more than a year
- Federal Tax Bracket – 37.0%
- Capital Gains Bracket – 20.0%
- Ohio State Tax Rate – 5.3%
- Net Investment Tax – 3.8%
- Cost Basis – $10,000
- Appreciation (Gain) – $20,000
- Fair Market Value – $30,000
#1 Sell security outright and gift proceeds to a public charity.
Federal Capital Gains Tax – $4,000
State Capital Gains Tax – $1,060
Net Investment Income Tax – $ 760
Total Capital Gains Taxes -($5,820)
Net Receipt from Sale- $24,180
Federal Tax Deduction – $8,947
(Saved in Income Tax)
Charity Receives – $24,180
Net Tax Savings – $ 3,127
#2 Donate security directly to a public charity.
Federal Capital Gains Tax – $ 0
State Capital Gains Tax – $ 0
Net Investment Income Tax – $ 0
Total Capital Gains Taxes – $ 0
Net Receipt from Sale – $30,000
Federal Tax Deduction – $11,100
(Saved in Income Tax)
Charity Receives – $30,000
Net Tax Savings – $11,100
Not only results in increased tax benefits for you, but also in a full $30,000 available to benefit charities, you value.
*Please note: the full value of the appreciated security can be donated, but deduction is limited to 30% of AGI. Always consult your tax professional to verify the ways of giving that are most advantageous to your situation.