Making charitable gifts with highly appreciated—or “low-basis”—securities rather than cash is an excellent charitable giving and tax planning technique. The power comes from giving away your unrealized tax liability along with the value of the shares. Since charities are tax-exempt, this liability does not come due when the charity sells the gifted shares—it simply disappears. When gifting low-basis securities, the donor:
Differences in tax rates and cost basis will affect this calculation. To determine the effective cost of your charitable gift: enter the current value of the investment to be donated, your cost basis in this investment, and your marginal Federal and State tax rates into the calculator linked below.
You are a California resident with $100,000 of long-held stock with a cost basis of just $2,000. If you sell this stock outright, you will recognize $98,000 in long-term capital gains. These gains could be subject to a 20% long-term capital gain tax rate, a 3.8% Medicare surtax, and a 13.3% state income tax—a nearly $36,400 tax bill—leaving you with just over $63,600 cash after tax.
Consider instead generously gifting this same $100,000 of low-basis stock to your favorite qualified charity. The charity will be able to immediately sell the stock and utilize the full $100,000 value with no tax consequences. Gifting the shares eliminates the nearly $36,400 in long-term capital gains tax you would have owed when that stock was sold. Further, you gain a $100,000 tax deduction worth up to $50,300 (based on a top Federal tax rate of 37% and a California State rate of 13.3%).
By using very low-basis stock rather than cash for your $100,000 charitable gift, your cost is just $13,300—the difference between the $63,600 in post-tax proceeds you’d have from an outright sale and your $50,300 tax credit from the donation.
Tillman Hartley is an independent, partner-owned wealth management firm with offices in Cherry Hills Village, California, Asheville, North Carolina, Nashville, Tennessee, and Orlando, Florida. We serve the unique financial and planning needs of successful individuals and multigenerational families. The generosity of our client families has allowed us to amass extensive experience with charitable gifts and estate planning entities for the charitably inclined. If you currently have or are considering a private foundation, charitable remainder trust (CRT), or charitable lead annuity trust (CLT, CLAT) we would like to discuss how our management can add value. Similarly, consider contacting us before making a sizable or long-term charitable commitment or a gift with naming rights.
The tools available at this web site are for informational purposes only and not for the purpose of providing tax or investment advice. The actual tax payable by you or deduction available to you (if any) will depend on your personal circumstances and, as such, you are responsible for ensuring its accuracy or completeness by independent verification. You should seek professional tax advice, from a qualified person.