Give the Gift of Stock
Gifts of stocks or bonds that have been held long enough to qualify as long-term capital gains (generally for more than a year) can be deducted at the fair-market value rather than the price at which you bought them. If you bought stock for $20,000 that, ten years later, is now worth $40,000, you can donate the shares to an approved 501(c)(3) organization and deduct the full $40,000 without having to sell the shares. You may want to make sure your recipient is a 501(c)(3) by checking with their office or website, because some nonprofits may not qualify.
The downside: Your deduction can only offset up to 30% of your adjusted gross income (AGI). The same rules apply to other long-term capital gain assets, such as real estate or closely held stock.
Stocks or bonds that have not been held long enough to qualify as long-term capital gains receive a deduction for their cost basis, rather than their fair market value. So if you bought stock six months ago for $20,000 that has since appreciated to $25,000, your deduction would only be the $20,000 you paid.
But the deduction can offset up to 50% of your AGI. Tangible personal assets such as valuable artwork or jewelry receive the same type of tax treatment.
Other Concerns to Keep in Mind
- For reference, you are allowed to deduct cash donations up to 60% of your AGI. Of course, with a cash contribution, the idea of fair market value doesn’t come into play.
- What happens to the amount of the charitable deduction that was not used because it exceeded the AGI limits? You can carry forward the unused portion for the next five years. So if you donate $50,000 in long-term appreciated stock in a year in which your income was $100,000, you are eligible to deduct only $30,000 (30% of your AGI). But you can use the remaining $20,000 as a deduction over the next five years.
- One exception to these rules involves gifts to a private foundation, which are subject to different AGI limitations than gifts to public charities.
- One final note: Donors making gifts from multiple categories (cash, long-term and short-term assets) are subject to ordering rules that dictate which gifts are deductible first and which must be carried over to a future year. Large gifts in one category can even preclude getting a deduction for gifts of another category. These rules are complicated and usually require a tax specialist to navigate.
Want to get the most impact from your charitable contributions? Your Baird Financial Advisor can help you execute a strategy that benefits both you and your desired recipients.
The information reflected on this page are Baird expert opinions today and are subject to change. The information provided here has not taken into consideration the investment goals or needs of any specific investor and investors should not make any investment decisions based solely on this information. Past performance is not a guarantee of future results. All investments have some level of risk, and investors have different time horizons, goals and risk tolerances, so speak to your Baird Financial Advisor before taking action. Baird does not offer tax or legal advice.
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