The Power (and surprisingly low cost!) of Making Charitable Gifts with Appreciated Assets

Did you know that in addition to cash donations, many charities will accept securities in kind? That means for investors with large positions in appreciated—or “low-basis”—stock, charitable gifting can be a financially savvy way to meet your philanthropic goals while meaningfully reducing your tax liability.

How does it work?

When you make a charitable donation of shares that have appreciated in value since you acquired them, you’re essentially giving away your unrealized tax liability along with the value of the shares.

Since charities are tax-exempt, they can liquidate the shares tax-free and benefit from the full value of your donation. In turn, you receive a dollar-for-dollar tax deduction, just as if you donated cash. You also eliminate a potentially sizeable tax liability, since selling appreciated securities typically triggers the capital gains tax (unless you hold the shares in a qualified account).

Consider the following example:

You’re 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. For someone in the top tax bracket, these gains may 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 can immediately sell the stock and utilize the full $100,000 value with no tax consequences.

Meanwhile, gifting the shares eliminates the nearly $36,400 in long-term capital gains tax you would have owed if you sold the stock yourself. Further, you gain a $100,000 tax deduction worth up to $50,300 (based on a top federal tax rate of 37% and California state tax 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.

Differences in tax rates and cost basis will affect this calculation. To see how you might benefit from making a charitable donation of low-basis stock, enter your tax rate and donation details in the calculator below.

Tillman Hartley is an independent, partner-owned wealth management firm with offices in Cherry Hills Village, Asheville, North Carolina, Athens, Georgia, and St. Augustine Beach, 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.

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