If you are considering making a contribution to a charity,
you may want to consider donating appreciated stock that
has been held for more than one year from your investment
portfolio instead of cash. This may result in enhanced
income tax benefits.
Generally, the deduction for a donation of property to a
charity is equal to the fair market value of the donated
property. However, a special rule exists for certain gifts of
stock to a private foundation.
If the donated stock has appreciated in value since the time
of purchase, you are entitled to a charitable deduction
equal to the stock’s fair market value. In addition, you may
not have to recognize any of the appreciation on the
donated stock if you donate the stock directly to the
For example, Robert and Michael each plan on donating
$10,000 to their favorite charity. Each also owns $10,000
worth of stock in ABC, Inc. They each bought the stock for
$2,000 several years ago.
• Robert sells his stock and donates the $10,000 cash.
Result: He is entitled to a $10,000 charitable deduction,
but must report his $8,000 capital gain on the stock.
• Michael, on the other hand, donates the stock directly to
the charitable organization. Result: He is entitled to the
same $10,000 charitable deduction. However, he is not
subject to any tax on the capital gain.
So, as you can see, how you donate the property to charity
may have a significant tax difference for you. The amount
of the charitable deduction for stock held for more than
one year is limited to 30 percent of your adjusted gross
income (20 percent for “qualified appreciated stock”
contributed to a private foundation) for that year. Any
excess may generally be carried forward for five years.
Keep in mind that you must complete your gift to a charity
in the year that the donation is made in order to be eligible
to claim a charitable contribution on your tax return for that
year. If the donation is made at or near year-end, you
should be particularly aware of the December 31 deadline if
you’re donating stock, as special tax rules apply:
• If you unconditionally deliver or mail a properly endorsed
stock certificate to a charity, the charity’s agent or authorized
representative, the gift generally is considered completed
on the date of delivery or on the date it is mailed.
• If you bring the stock certificate to your bank or broker,
or to the corporation that issued the stock, in order to
transfer it to the name of the charity, the gift is
considered completed on the date the stock is
transferred on the books of the corporation.
There are several gifting alternatives you might want to
consider rather than making a direct contribution to a
charity. Please contact us to discuss these options.