| Charitable Contributions / Charitable donations of appreciated stock |  |
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If you are planning to make a
relatively substantial contribution to a charity, college, etc., you
should consider donating appreciated stock from your investment
portfolio instead of cash. Your tax benefits from the donation can be
increased and the organization will be just as happy to receive the
stock. This tax planning tool is derived
from the general rule that the deduction for a donation of property to
charity is equal to the fair market value of the donated property. Where
the donated property is "gain" property, the donor does not
have to recognize the gain on the donated property. These rules allow
for the "doubling up," so to speak, of tax benefits: a
charitable deduction, plus avoiding tax on the appreciation in value of
the donated property. Example:
Tim and Tina are twins, each of whom attended Yalvard University. Each
plans to donate $10,000 to the school. Each also owns $10,000 worth of
stock in ABC, Inc. which he or she bought for just $2,000 several years
ago. Tim sells his stock and donates the
$10,000 cash. He gets a $10,000 charitable deduction, but must report
his $8,000 capital gain on the stock. Tina donates the stock directly to
the school. She gets the same $10,000 charitable deduction and avoids
any tax on the capital gain. The school is just as happy to receive the
stock, which it can immediately sell for its $10,000 value in any case. Caution:
While this plan works for Tina in the above example, it will not work if
the stock has not been held for more than a year. It would be treated as
"ordinary income property" for these purposes and the
charitable deduction would be limited to the stock's $2,000 cost. If the property is other ordinary
income property, e.g., inventory, similar limitations apply. Limitations
may also apply to donations of long-term capital gain property that is
tangible (not stock), and personal (not realty). Finally, depending on the amounts involved and the rest of your tax picture for the year, taking advantage of these tax benefits may trigger alternative minimum tax concerns. |
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