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How to Donate Appreciated Stock

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CharityIt’s well understood that when you donate $100 to an eligible charity, you get a $100 tax deduction if you itemize your deductions.

What happens when you donate $100 in stock to an eligible charity? The exact same thing. You get a $100 deduction to your taxes if you itemize your deductions.

If that’s the case, why is donating appreciate stock such a big deal? It’s a big deal because the stock didn’t cost you $100, it cost you less than that but you get to deduct the full value as a charitable donation on your taxes. The charity gets a sizable donation, you get a nice tax deduction, and everyone wins. Well… not everyone. The only loser in this entire transaction is the United States Treasury.

Should You Donate Stock?

There are a few questions you need to answer for this strategy to make sense:

  1. You need to be in the 15% federal income tax bracket or higher,
  2. You need to itemize your deductions,
  3. You need to confirm that the charity is a registered 501(c)(3) non-profit.
  4. You must have owned the stock for more than one year.

If you answered yes to the first two, then this strategy makes financial sense to you. If you also answered yes to the second two then you’re in business. All you have to do is call up your charity and ask them what the procedure is for donating stock.

Sell & Donate or Donate Stock?

Let’s say you bought 100 shares of Bargaineering at $100 a share (it’s expensive!) two years ago. Today, the stock is worth $150 a share, so you have gains on paper of $5,000. If you were to sell the shares of stock, you would have to pay long term capital gains tax on the profits. If you assume that’s 15%, you walk away with $14,250 (15% off the $5,000 profits, plus your original $10,000). If you were to donate it, you would get (assuming 25% tax bracket) a deduction resulting in a $3,562.50 reduction in taxes. The $14,250 donation would have cost you $6,437.50.

Let’s say you were to donate the $15,000 in appreciated stock instead of selling it. You get a $15,000 deduction which, assuming you are in the 25% tax bracket, results in a $3,750 reduction in your taxes. You get the full value of the donation while the real “cost” to you is much less. The $15,000 donation only cost you $6,250 (original $10,000 minus the $3,750 reduction in taxes) out of pocket.

To donate directly, which would cost you less in time in preparing your taxes, allows you to give more at a lower cost. The only player being cut out of the process is the Treasury.

This strategy becomes more powerful when stock has appreciated a significant amount or when you enter the higher tax brackets. It will probably never be more profitable to donate than to sell but if you routinely donate cash, doing so with stock will lessen the financial burden (which means you can give even more).

You still have a couple days… please consider it. :)

(Photo: howardlake)

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12 Responses to “How to Donate Appreciated Stock”

  1. A great idea I had never considered. We are looking to make a few last minute donations for the year and will consider stock as a result of this article.

    Thanks for the insights!

  2. echidnina says:

    What a clever idea! You lose less, the charity gets more, everyone’s happy. :)

  3. Chris says:

    Wow, I had never considered doing this before.
    Thanks

  4. That is a great loophole in the tax code!

    Thanks!

    John DeFlumeri Jr

    • I’m not sure that it’s a loophole in the sense that it’s an unintended consequence of the tax code. This ability has been around for a long time, so congress could have closed the loophole, if that’s how they viewed it.

      I think it’s just a way to give an incentive for people to donate to charity. Why? Because many charities do things that decrease government spending, either directly or indirectly. What’s better for the government – for it to collect 15% on your gains, or for you to donate the entire value stock to something like Big Brothers / Big Sisters that potentially reduces crime (and thus reduces government spending on law enforcement)?

      I think people enjoy to idea of taking money out of the government’s pocket while putting money into the pocket of a charity (Robin Hood), and that this wrinkle in the tax code is intended to bring about more donations. Some people would donate the stock regardless, while this may be enough to push others over the edge.

  5. Izalot says:

    Great idea, but did anyone really have stocks that appreciated this year?

  6. eric says:

    Now I only need stocks that appreciated! :P

  7. William says:

    I have been using this donation method every other year, using the bunching technique (of course to take advantage of standard deduction). Works great! I noticed this year that the charities did not always follow the rules of valuing the stock the same as the broker. What is your experience on how IRS views the valuation from the broker versus the thank you letter acknowledgement from the charity?

  8. Donating appreciated assets of fine art is even better than stock….there is a legacy that the donor can realized in perpituity and the upside potential for tax benefits is very attractive. All within

    My firm creates charitable strategies for gifts to museums and academic institutions and facilitates transactions from collectors

  9. Browser crash above…sorry

    An art collector willing to trade a life time of legacy for a collection of fine art in certain ‘hot’ categories of auction pricing is the perfect asset to use for a charitable gift to museum or academic institution.

    This works just like appreciated stock, but the upside can be considerably more attractive and the charitable purpose is a lot more fun for the donor.

  10. Larry says:

    How about depreciated and/or appreciated stock in an IRA, can it be donated in a beneficial manner?

  11. Ken says:

    You have to be careful. I created a wildlife preserve on my place. All the paperwork went through (local, state and federal), and my deduction was supposed to be the difference in property value between the value of the property before and the value after the donation.
    After it was all done I found that my actual deduction was only 50 cents on the dollar.
    More thieving government, ready to take advantage of our ignorance with complex rules.


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