Donating LEAPS Stock Options

Question: If I were to buy $1000 of stock, and it went up to $2000 in value, I would be able to donate the stock, claim a $2000 deduction, and report no capital gains.

Let’s say now that I purchase $1000 worth of publically traded stock options on the market. They go up to $2000 in market value, and I donate them. Do I report capital gains of $0 or $1000?

 

Donating LEAPS Stock Options

Answer: Your first example only works if you hold the stock for at least a year. If the stock is held for less than one year, you only get to deduct the lower of your cost basis of $1,000 or the stock’s value but you still report no gain,.

If you buy an option contract for $1K and it goes to $2K and you donate it, you have a chartiable contribution for $1k assuming you owned the contract for less than a year, or $2K if you owned it for 12 months or more, and no capital gain. Since publicly traded options typically have a life of less than a year, I don’t see how you would qualify to meet the one-year holding period.

Most charitable organizations probably wouldn’t accept an option donation. They generally have restrictions on what they can invest in and options (or any kind of derivative) is almost universally excluded.

They’d also be inclined to not accept it since they’d have to pay to exercise them (or alternately they’d expire worthless).