How to Give Stock to Charity
Special rules apply to appreciated property
Depending on your situation, you may decide to give a gift of stock or some
other appreciated property instead of cash to a charity. The rules are
slightly more complicated, but the tax benefits for such generosity may be
well worth it.
Basic premise: If you donate stock that would qualify for long-term capital gain if you sell it (i.e., you have held the stock for more than one year), you can deduct an amount equal to its fair-market value. On the other hand, if the stock would not qualify for long-term capital gain treatment if it is sold (i.e., it has been held for one year or less), your deduction is limited to your basis in the stock.
Of course, this could affect the way you give to charity. For instance, let’s say John owns Fast Track stock that cost him $5,000 11 months ago. The stock is currently worth $8,000. If John gives the Fast Track stock to charity, his deduction is limited to an amount equal to his $5,000 basis. However, if John waits just one more month and a day to donate the stock, his deduction is increased to its $8,000 fair-market value.
In other words, you get the tax benefit of appreciation in value when you donate property held more than one year. You are never taxed on the $3,000 appreciation in value.
Similarly, you might choose to donate low-basis stock instead of high-basis stock absent any extenuating circumstances.
Suppose the stock you are donating to charity has declined in value. In that case, your deduction is limited to the fair-market value, regardless of how long you have held the property. Reason: You cannot deduct the difference in your basis and the stock’s fair-market value.
Note: Other special rules apply to gifts of appreciated property. For instance, if you donate artwork to a museum, your deduction is limited to your basis in the property if it is not used to further the charity’s tax-exempt function. Suggestion: Stipulate that the artwork must be displayed where it can be viewed by the public.
Whether property has appreciated or
depreciated in value, you should obtain an independent appraisal of the
property’s current worth. This is the best proof you can have if your
deduction is ever challenged by the IRS. Also, you are required to attach an
appraisal to your return for property donations exceeding $5,000.
Wherewithal
is provided by Somerset for our clients and other interested persons
upon request. Since technical information is presented in generalized
fashion, no final conclusion on these topics should be made without
further review. For additional information on the issues, please
contact
a member of the firm. Somerset provides total financial solutions,
including accounting, assurance, information solutions, litigation &
valuation, tax, wealth management and management consulting services to
entrepreneurs and their businesses. This document is not intended or
written to be used, and cannot be used, for the purpose of avoiding tax
penalties that may be imposed on the taxpayer.
Somerset CPAs,
P.C.
3925 River Crossing Parkway, Third Floor
Indianapolis, Indiana 46240
317.472.2200 • 800.469.7206 • FAX 317.208.1200
www.somersetcpas.com
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