Charitable donations of appreciated stock

Why Donate Appreciated Stock to a Charity?

There are many tax benefits that can be enjoyed by donating appreciated stock to a charity instead of selling the stock and then giving cash to the charity. If you are planning to make a relatively substantial contribution to a charity, it is essential to consider donating appreciated stock from your investment portfolio instead of cash. Gifting appreciated stock to a charity can have many tax benefits for you when you take the charitable contribution tax deduction.

 

Charitable donations of appreciated stock

As a starting point, remember 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.

 

Charitable Deduction and Gift of Appreciated Stock

When you gift appreciated stock, you get a charitable deduction, plus avoiding tax on the appreciation in value of the donated property. In the end, taking advantage of these rules to gift appreciated stock to a charity can end up benefiting everyone involved.

There are some special restrictions to getting charitable donations of appreciated stock. This method 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 original cost.

 

Ordinary Income Property

If the property is other ordinary income property, similar limitations apply. Limitations may also apply to donations of long-term capital gain property that is tangible (not stock), and personal (not realty).

 

Other issues with charitable donations of appreciated stock

If there are several large charitable contributions occurring in the tax year, it is important to remember that there could be some AMT tax concerns. It is also important to remember the general restrictions imposed on charitable giving by the IRS. Double checking these restrictions will ensure that your gift of appreciated stock creates the biggest tax benefit. Securities held long-term: In general, if an individual donates securities held long-term to a “public” charity, such as a church, educational institution, health care organization, or other cause, the amount he or she can claim as a charitable gift for federal income tax purposes is the securities’ fair market value on the date of the gift.