Gifting Appreciated Stock: It’s a win-win!

Post by the Finance Committee

Given just how far the stock market has risen in the past several years, many investors are fortunate enough to have investments that have appreciated in value substantially. That's good news for the value of your investment portfolio, but if you own those investments in a taxable account, then you'll have to pay what could be a substantial amount of tax on the capital gains that those investments have earned since you bought them. Even at preferential long-term capital-gains rates, the prospect of paying as much as 20% of your hard-earned gains to the IRS probably isn't the kind of charity you had in mind.

To avoid that capital-gains liability, smart taxpayers use special provisions of the tax laws that allow you to use appreciated stock to make charitable gifts. When you give appreciated stock that you've held for longer than a year, you're allowed to take the full current market value of the shares as an itemized charitable deduction on your tax return.

There are a couple of traps to keep in mind when giving stock to charity. First, you're not allowed to deduct the fair market value on stock that you've held for a year or less. There, the capital gains would be treated as short-term, and as a result, you'd only be allowed to deduct the smaller amount that you actually paid for the shares, rather than their current appreciated value.

Second, if your stock has gone down in value, then this rule actually works against you. In that case, it makes more sense to sell the stock yourself, taking the capital loss on your own return, and then making a cash gift to charity from the sale proceeds, rather than giving stock to charity directly.

If you’d like to gift appreciated stock to the school, please contact Tassie DeMoney @ 206-364-7777.

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