A Gift of Stock
Appreciated stock offers powerful tax benefits as an outright gift or as funding for a life income gift.
OPTION 1—giving appreciated stock
Giving appreciated stock (held for more than one year) may let your clients make the biggest impact for the lowest cost thanks to the double tax benefit:
- Donors qualify for an immediate income tax charitable deduction for the full value of the stock if they itemize.
- Donors owe no capital gains tax on the appreciation.
Note that a donor’s deduction for long-term appreciated stock is 30% of their adjusted gross income. Any excess deduction can be carried over for up to five years.
Publicly traded stocks are the most commonly donated appreciated securities, but clients could also give bonds, mutual fund shares, or closely held stock.
Selecting the best stock to give
The best choice depends on your client’s portfolio, investment goals, and tax situation. General guidelines indicate that a donor might do well to consider a stock:
- Held for more than one year (since that will allow them to deduct the full fair market value)
- With significant appreciation (since that will provide the strongest tax benefits)
- That will help reposition their investments and rebalance their portfolio
- That lowered or cut its dividend
OPTION 2—funding a life-income gift with appreciated stock
Another option is for your client to use appreciated stock to fund a life-income gift, such as a charitable gift annuity or a charitable remainder trust. Benefits include:
- A donor qualifies for an income tax deduction (if they itemize) in the year of the gift.
- A donor creates an income stream to supplement other sources of retirement income—income that is likely to be higher than any dividends they might be receiving from the stock.
- A donor may be able to reduce or spread out the payment of capital gains tax on the appreciation.
Evaluate the fit.
Appreciated stock may be a particularly good option for a client to consider if they:
- Have stock they want to sell, but they don’t want to pay tax on the significant appreciation
- Want to rebalance their portfolio
- Want to employ one of the most powerful gifting options with double tax benefits
See how it works.
For the past few years, Jennifer has given us a check for $10,000. This year, she realizes that the growth of some of her stocks has caused her investment portfolio to become too heavily weighted in equities. She decides to give us stock worth $10,000 that she purchased years ago for $1,000. If Jennifer itemizes, she can take a deduction for the full $10,000, even though $9,000 of it has never been taxed. In her 37% tax bracket, the tax savings are substantial.
| Gift of Cash | Gift of Stock |
Jennifer’s gift | $10,000 | $10,000 |
Income tax savings (37% tax bracket) | $3,700 | $3,700 |
Capital gains tax savings (23.8% of $9,000) | -- | $2,142 |
Tax savings generated by Jennifer’s gift | $3,700 | $5,842 |
Consider the timing.
To qualify for a charitable deduction this year, your client should initiate the stock transfer by mid to late December.
The UMass Dartmouth Advancement Team can help.
Ask us for an illustration that will clearly represent the anticipated financial and tax benefits of your client’s hypothetical gift.