Tax Tips
Tax Tip No. 15: Donate Securities Instead of Cash
When you give an investment asset, you avoid capital gains and can still deduct its appreciated value.
By Mary Beth Franklin, Senior Editor, Kiplinger's Personal Finance
December 21, 2007
- Comments
- Email This Article
- Print This Article
- Order a Reprint
Advertisement
While most of us are tempted to open our wallets and checkbooks at the end of the year to make charitable contributions, there are better ways to fund a favorite charity. How? Consider giving appreciated securities -- stocks or mutual fund shares -- instead of cash.
When you give $1,000 in cash, you get to deduct $1,000, and that saves you $250 in the 25% bracket. (Any state income tax savings are gravy.)
But let's say you have $1,000 worth of mutual fund shares that you bought more than a year ago for $500. If you sold those shares, you'd owe $75 in tax on the profit even at the special 15% capital gains rate. But if you donate those shares, the charity gets the full $1,000 (it doesn't have to pay tax on the profit when it sells), you avoid that $75 tax bill and you still get to deduct the full grand. It's a win, win, win situation.
This gifting strategy does not work for investments that have lost value. For example, if a stock that you bought for $1,000 is now worth only $400 and you donated it to a charity, your deduction would be limited to current $400 value. At that point, you would be better off selling the stock, making a tax-deductible contribution of $400 in cash to the charity and claiming a $600 capital loss.
What if you don't want to part with your investment? Give it away, anyway, and use the cash you would have donated to re-invest. The maneuver is perfectly legal and simply wipes out the tax bill that's built up so far and establishes a new basis.
Giving appreciated securities sounds like a maneuver for fat cats, but it can pay off for philanthropists of more modest means, too. The charity you plan to help should be more than willing to fill in the details. Time is running out, though, and it will take a little longer than writing out a check. The transfer of ownership has to be completed by December 31 to lock in the deduction for your 2007 return.
Permission to post your comment is assumed when you submit it. The name you provide will be used to identify your post, and NOT your e-mail address. We reserve the right to excerpt or edit any posted comments for clarity, appropriateness, civility, and relevance to the topic.
View our full privacy policy