When you donate long-term appreciated stocks, bonds or mutual funds to United Spinal Association:
1. You incur no capital gains tax, which amounts to an “extra” tax savings.
2. United Spinal Association incurs no capital gains taxes when it sells the securities.
3. You may deduct the fair market value of the securities as of the date of your gift. For stocks, this is determined by multiplying the number of shares by the mean share price on the date of the transfer.
With these added tax advantages, many donors find that they can be more generous by donating appreciated securities than they could be with an after-tax gift of cash.
Please note that “long-term” is defined as those securities that have been owned by you for more than one-year and one-day.
1. For appreciated securities that you have held for less than one year and one day, only the cost basis is deductible.
2. If a stock has decreased in value since your purchase, it is usually more advantageous for you to claim an investment loss on your tax return, and then contribute the cash proceeds.
See Example 2 below.
Mr. Smith is in the 28 percent tax bracket and he owns securities currently valued at $30,000. He purchased these securities several years ago for $4,000. He contributes the securities to United Spinal Association and realizes a $30,000 charitable deduction, which saves him $8,400 in income taxes (28 percent of $30,000).
In addition, Mr. Smith avoids the potential capital gains tax on his $26,000 paper profit. This means a further savings of $3,900 (15 percent of $26,000). Therefore the actual cost for Mr. Smith for the gift of $30,000 in appreciated securities is only $17,700 ($30,000, less $8,400, less $3,900).
Mr. Jones is in the 28 percent tax bracket and he owns securities valued at $2,000. He purchased these securities several years ago for $4,500.
If Mr. Jones contributes the securities to United Spinal Association, he realizes a charitable deduction of $2,000, which saves him $560 in income taxes (28 percent of $2,000). His after tax investment loss is $1,940 ($2,500 less $560).
However, if Mr. Jones sells his securities and claims an investment loss of $2,500, he can reduce his taxes by $700 (28 percent of $2,500). If he then takes the proceeds of the sale ($2,000) and contributes them to United Spinal Association, he realizes an additional tax savings of $560 (28 percent of $2,000). In this instance, his after tax investment loss has been reduced from $2,500 to $1,240 ($2,500, less $700, less $560).
The full fair-market value of gifts of long-term appreciated securities or real estate is deductible up to 30 percent of a donor’s adjusted gross income. Any amount in excess of the 30 percent ceiling can be carried forward for up to five years.