Giving Appreciated Stock

Book page posted in on 17 December 2012| comments
audience: | last updated: 18 January 2013

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Donating non-cash assets that are worth more than your tax basis1 can offer significant income tax advantanges when compared to donating cash. This is due to the fact that when you give what we refer to as appreciated assets, not only do you receive a charitable income tax deduction, you also eliminate any capital gains tax that you would had paid if you had sold them. This is equivantlent to receiving two deductions and can either reduce the after-tax cost of your gift or enable you to give more for the same net cost as giving cash!

Publicly-traded stock is one of the most popular types of asset for charitable giving because it is often highly-appreciated, is easily valued, and can be transferred quickly and conveniently. The following interactive presentation will enable you compare the income tax benefits of donating cash to the increased benefits of giving appreciated stock and see how such a gift could work for you.

Interactive Example

You would like to make a charitable gift of $100,000. You are in a combined federal and state ordinary income tax bracket of 39.6%, and a combined federal and state long-term capital gains tax bracket of 23.8%.

If you donate cash, you will receive a $100,000 charitable income tax deduction. In a 39.6% income tax bracket, this deduction can reduce your income taxes by as much as $39,600.

As an alternative, if you fund your gift with $100,000 of stock (or other securities) that were purchased at least one year ago for $20,000,

  • you will receive a charitable income tax deduction for $100,000, saving $39,600 in taxes (just as in the case of a cash gift), AND
  • you will avoid realizing a capital gain of $80,000, and forever eliminate a potential capital gains tax of  $19,040 (23.8% capital gain tax rate X $80,000) that would have been paid if you sold the stock rather than donating.

By giving stock instead of cash, the cost of your gift can be reduced to $41,360. This represents a combined tax savings of $58,640 - an increase in tax benefits of 48.08% over giving cash!

Summary of Benefits

  Gift of Cash Equal Gift of Stock
Charitable Gift $100,000 $100,000
Cost Basis n/a $20,000
Potential Capital Gains if Sold n/a $80,000
Capital Gains Tax Avoided $0 $19,040
Combined Income and Capital Gains Tax Savings $39,600 $58,640
Increase in Tax Savings as Percent n/a 48.08%
After-Tax Cost of Gift $60,400 $41,360

How Much More Can You Give?

Since the after-tax cost of donating appreciated stock is less than donating cash, how much more stock can you give for the same $60,400 after-tax cost as giving cash?

If you give appreciated stock (or other securities) worth $146,035 with a cost basis of $29,207, your income taxes can be reduced by up to $57,830 and potential capital gain taxes of $27,805 will be eliminated.

The net cost of this gift is $60,400 ($146,035 - $57,830 - $27,805), the same as for a cash gift of $100,000.

The result is a $46,035 larger gift—an increase of 46.03% for the same after-tax cost as giving cash!

NOTE: This calculation is provided for educational purposes only. The type of assets transferred, the actual date of the gift, and other factors may have a material effect on the amount or use of your deduction. You are advised to seek the advice of your tax advisors before implementing a gift of this type.

  • 1. Your tax basis in an asset (also referred to your adjusted cost basis) depends on how you acquired it. If you purchased the asset, your basis is generally the amount you paid for it plus any acquisition costs (e.g., fees and commissions). If you received an asset by gift from a living person, you generally take over their basis. And finally, if you received an asset through a deceased person's estate, your basis is generally the fair market value of the asset on the date of their death. If you have any questions about your basis in an asset, we urge you to consult with your tax advisor.
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