While donations of any kind are appreciated, gifting investments benefits both the giver and the receiver. Here are four key things to know about this type of giving.
These Donations Are Tax Deductible
Donating investments that have gained value will give you tax deductions equal to the current market value, not what you bought them for.
This is only applicable if you are itemizing enough things on your tax return to qualify for a deduction, however.
Donating Cash Has Fewer Tax Advantages
Giving appreciated stock is far better than giving cash — even if you were to sell an investment and then donate the cash, you would have to pay capital gains taxes first. You don’t have to pay them if you just donate the shares.
Hold for at Least One Year
If you held an investment for less than one year, the tax deduction would be treated differently. For example, you bought 100 shares of XYZ at $10 per share. Six months later, you decide to donate those 100 shares. At the time of donation, XYZ is now $15 per share. Your donation is worth $1,500.
However, you held the stock for less than one year so your deduction is limited to your cost basis. That means you are only allowed to deduct the $500 difference between the price you bought XYZ and the price it was when you donated it.
Donor Advised Fund
If you are unsure of where you would like to donate your appreciated asset(s), you can instead give to a donor-advised fund. This type of fund has two advantages. One, you are still able to deduct the donated amount. Two, if you are undecided on where you want to donate your appreciated asset(s), you can use the donor-advised fund as a holding vehicle until you decide.
Donate an Investment Gift
Although you should not need an incentive to donate to the less fortunate, gifting appreciated assets is beneficial to both parties. As the year comes closer to ending, the time to plan your taxes is fast approaching, and with that determine what kind of donations to make.
Jackie Cohen is an award winning financial journalist turned turned financial advisor obsessed with climate change risk, data and business. Jackie holds a B.A. Degree from Macalester College and an M.A. in English from Claremont Graduate University.
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