Donating Appreciated Stock


W

W

I read a comment by an investor today who said: "I purchased 1,000 shares
on Jan. 14, 2009, for $4,255; 1,000 shares on Jan. 15, 2009, for $4,005; and
2,000 shares on March 17, 2009, for $5,005. I donated all 4,000 shares today
to the Salvation Army, for a donation value of $132,200. " (Note: the
stock went from $2.50 to over $30.)

Isn't his calculation of donation value wrong? Wouldn't his donation be
valued at his cost basis, not at market value of the stock, since he never
sold the asset?

And wouldn't he be handing a huge tax bill to the Salvation Army, because
when they sell those shares their cost basis would be his cost basis?
 
Ad

Advertisements

A

Arthur Kamlet

I read a comment by an investor today who said: "I purchased 1,000 shares
on Jan. 14, 2009, for $4,255; 1,000 shares on Jan. 15, 2009, for $4,005; and
2,000 shares on March 17, 2009, for $5,005. I donated all 4,000 shares today
to the Salvation Army, for a donation value of $132,200. " (Note: the
stock went from $2.50 to over $30.)

Isn't his calculation of donation value wrong? Wouldn't his donation be
valued at his cost basis, not at market value of the stock, since he never
sold the asset?
He donated long term appreciated property to a recognized charity.

He does not regognize income on the gain, and he is allowed to deduct the
Fair Market Value of the donation on date of gift.


And wouldn't he be handing a huge tax bill to the Salvation Army, because
when they sell those shares their cost basis would be his cost basis?

Since receiving gifts is well within the allowed nontaxable income of
the Salvation Army, and I will assume he has a proper receipt for the
gifts, he gets to deduct the FMV, and the charity does not recognize
taxable income. If he cannot use it all this year because
it exceeds 30% of his AGI, he has a carryover available to him.
 
J

JoeTaxpayer

I read a comment by an investor today who (donated appreciate stock).
One year, I donated stock which had tripled in value. Say from $1,000 to
$3,000. I was into AMT territory and the long term gain would have been
22.5% So, by donating the stock, I saved $450 in addition to the tax
savings from a $3000 cash donation.
For those who are charitable, this is a neat trick to use on an ongoing
basis. Donate stock instead of cash and if it was shares you'd want in
your portfolio, just replace it. You just bumped up your basis for free.
 
B

Barry Margolin

W said:
I read a comment by an investor today who said: "I purchased 1,000 shares
on Jan. 14, 2009, for $4,255; 1,000 shares on Jan. 15, 2009, for $4,005; and
2,000 shares on March 17, 2009, for $5,005. I donated all 4,000 shares today
to the Salvation Army, for a donation value of $132,200. " (Note: the
stock went from $2.50 to over $30.)

Isn't his calculation of donation value wrong? Wouldn't his donation be
valued at his cost basis, not at market value of the stock, since he never
sold the asset?
No, there's a special exception for donating appreciated, long-term
securities. Your tax deduction is the FMV, not the cost basis.
And wouldn't he be handing a huge tax bill to the Salvation Army, because
when they sell those shares their cost basis would be his cost basis?
So? If you had to pay that tax, you would have had less to contribute
to them, so they end up with the same net.

They also may be tax-exempt.

I haven't paid much capital gains tax in years, I do all my large
charitable contributions by donating appreciated mutual fund shares to
my Fidelity Charitable Gift Fund account (if you're transfering funds
from another Fidelity account, you can do the entire thing online).
When I want to get out of a position, I do it by donating them; if I
just want to make a contribution, I immediately replace the shares I
transferred. So in two transactions I've effectively donated cash and
wiped away years of capital gains.

The only time I think I've sold shares for a normal gain was a few years
ago when I had a large capital loss carryover. Since there's not much
benefit to dying with carryover held over, I made use of it to absorb
gains while rebalancing and consolidating my portfolio.
 
J

John Levine

No, there's a special exception for donating appreciated, long-term
securities. Your tax deduction is the FMV, not the cost basis.
Right.
They also may be tax-exempt.
Of course they're exempt. The Salvation Army is a church.

People donate appreciated stock to our church all the time. We sell
it immediately, and don't pay any tax.

Regards,
John Levine, (e-mail address removed), Primary Perpetrator of "The Internet for Dummies",
Please consider the environment before reading this e-mail. http://jl.ly
 
S

Stuart A. Bronstein

JoeTaxpayer said:
One year, I donated stock which had tripled in value. Say from
$1,000 to $3,000. I was into AMT territory and the long term
gain would have been 22.5% So, by donating the stock, I saved
$450 in addition to the tax savings from a $3000 cash donation.
For those who are charitable, this is a neat trick to use on an
ongoing basis. Donate stock instead of cash and if it was shares
you'd want in your portfolio, just replace it. You just bumped
up your basis for free.
The wash sale rules don't apply because you don't recognize the gain?
 
Ad

Advertisements

J

JoeTaxpayer

The wash sale rules don't apply because you don't recognize the gain?
Wash sale only applies when one sells at a loss. You must buy
replacement shares +/- 31 days from time of sale at loss.

I can sell to take a gain anytime I like. IRS happy to take my money. In
this case, I just get rid of the potential cap gain.
 
S

Stuart A. Bronstein

JoeTaxpayer said:
Wash sale only applies when one sells at a loss. You must buy
replacement shares +/- 31 days from time of sale at loss.

I can sell to take a gain anytime I like. IRS happy to take my
money. In this case, I just get rid of the potential cap gain.
If you're going to buy the stock right back at market value, it makes
sense to do that instead of giving the same money to charity
directly, then, because of the stepped up basis.

So if you can get a deduction for market value of the stock and
increase basis by buying it right back again, you're getting in
effect a double deduction. Do I have that right?
 
J

JoeTaxpayer

So if you can get a deduction for market value of the stock and
increase basis by buying it right back again, you're getting in
effect a double deduction. Do I have that right?
Yes, there's a double dip here. You get the tax deduction and you get to
'avoid' the cap gain, which as I point out, can actually have a higher
impact than the 15% if one is in AMT territory.
As Barry pointed out, using the charitable trust from a broker can help
smooth out the transactions.
 
W

W

Stuart A. Bronstein said:
If you're going to buy the stock right back at market value, it makes
sense to do that instead of giving the same money to charity
directly, then, because of the stepped up basis.

So if you can get a deduction for market value of the stock and
increase basis by buying it right back again, you're getting in
effect a double deduction. Do I have that right?
This would be clearer - for me anyway - if there were a real example. I am
not sure I see a double deduction.

Say that a person has gross income of $100K and owns a stock with a holding
period under one year that has a $10K cost basis and current market value of
$50K. Implied short term capital gains is $40K. Just for argument say
the tax rate was 30%. So if you sell this stock you have AGI of $140K and
net income after tax of $98K.

Now say you want to donate that appreciated stock to charity instead. Now
you have a $50K deductible donation and AGI of $50K. Net income is $35K.
But on a cash basis you actually made the $100K gross income and paid tax of
$15K, leaving you $85K.

So in the case where you sell the stock and keep the proceeds you have net
$98K versus if you donate you are left with $85K. You make more by selling
the stock and paying tax on that sale. But if you are charitable and want
to give away money, you managed to give away $50K of assets while only
affecting your net worth by about $14K. So it was tax-efficient charity,
but you did lose money. I make that explicit because some of these posts
seem to be implying that you came out ahead on a net asset value basis, and
it doesn't look so.

If you invest in the same stock again, that's new money you are investing,
and of course it gets a new cost basis. I don't see any double deduction.
 
S

Stuart A. Bronstein

W said:
This would be clearer - for me anyway - if there were a real
example. I am not sure I see a double deduction.
Think of it this way. Say you have $10,000 in cash you want to
donate to a charity. You also have $10,000 in stock that has a basis
of $2,000.

If you donate the money to charity, you get a $10,000 deduction. But
when you eventually sell the stock you will pay tax on a capital
gain. Let's say it goes up in value to $15,000 when you eventually
want to sell it. At that time you'll have a capital gain of $13,000.

Instead say you donate the stock to charity and take the cash you
were going to donate and use it to replace the stock. In that case
you get a $10,000 deduction when you make the gift. But then when
you sell the stock your capital gain is $5,000 instead of $13,000.
 
Ad

Advertisements

J

JoeTaxpayer

This would be clearer - for me anyway - if there were a real example. I am
not sure I see a double deduction.
As I often do, I confused the issue by referencing that one can buy back
at current price. Forget that for now.

I own a stock $10K value $1K basis.
I wish to donate $10K to a charity. By donating cash I get a tax benefit
that's at my marginal rate, say 28%.
But - by donating the stock, I avoid the potential cap gain tax on the
$9K of gain. 15% or potentially more. This avoiding the cap gain is the
'extra' benefit gained by donating the stock.
 
A

Arthur Kamlet

If you're going to buy the stock right back at market value, it makes
sense to do that instead of giving the same money to charity
directly, then, because of the stepped up basis.

So if you can get a deduction for market value of the stock and
increase basis by buying it right back again, you're getting in
effect a double deduction. Do I have that right?

One thing I have not seen mentioned yet, is the deductibility
limitations.


Gifts of apreciated property to a 50% organization is limited to 30%
of AGI with a carryover to next year available.


So you might have to wait several years before gaining the full tax
benefit of this gift. And in some cases, where you might not be able
to itemize except that you have a high charitable gift deduction, this
limitation might reduce the deduction to below the itemized threshold.


Also if the sppreciated stock has only slight appreciation, you may
elect to claim the cost and receive the full 50% deductibility.


To explain a "50% organization" it is one determined by the iRS
to meet the requirements of S 501(c)(3) allowing cash donations to be
deducted in the current year up to 50% of AGI, with the remainder
carried forward.

Private Foundations are generally 30% organizations with gifts of
appreciated property limited to 20%. The PF 30%/20% limits change
to the 50%/30% for any PF that distributes substantially all of its
program income to 50% organizations.
 
R

removeps-groups

One thing I have not seen mentioned yet, is the deductibility
limitations.

Gifts of apreciated property to a 50% organization is limited to 30%
of AGI with a carryover to next year available.
Also, isn't the carryover available for only 5 years?

Also, if your AGI is high, your itemized deductions are phased out to
20% of their original value.
 
A

Arthur Kamlet

Also, isn't the carryover available for only 5 years?

Yes, it's limited, and 5 years rings a bell.

Also, if your AGI is high, your itemized deductions are phased out to
20% of their original value.
Once upon a time when dinasaurs roamed the earth and the NFL still
played football, that was true. No longer. No phaseout.
 
R

Rich Carreiro

Once upon a time when dinasaurs roamed the earth and the NFL still
played football, that was true. No longer. No phaseout.
I thought the elimination of the itemized deduction phaseout
was yet another only-for-2010 thing.
 
Ad

Advertisements

J

JoeTaxpayer

I thought the elimination of the itemized deduction phaseout
was yet another only-for-2010 thing.
You are right, but it was extended two years by the Dec 10 Obama Tax
Cut. If not extended or made permanent, it lapses on 12/31/12 along with
marriage penalty (isn't this phrase redundant?) relief, and the $2000
Coverdell Education Savings Account Limit.

And yet the document I see here
http://www.jct.gov/publications.html?func=startdown&id=3716
says otherwise.

I need to find the 2010 Obama Cut summary. The final version.
 

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Top