Save Tax By Giving Charities Appreciated Assets

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One of the special tax benefits you could consider is to give appreciated assets (stocks, real estate) to charity instead of writing them a check.

Suppose you want to give your church or charity a special gift of $10,000.

If you have a stock that you bought for $4,000 and it is worth $10,000 now, you might sell the stock and pay maybe $900 of income tax on the $6,000 profit.  The sale proceeds after tax would be about $9,100 ($10,000 sale price less $900 tax).  You could do a check to the charity, but you will have tax to pay on the next return.

OR, you might give the stock directly to the charity.  They can sell it for the $10,000 and as a non profit organization, they do not pay a tax.  You get a full $ 10,000 deduction for charitable contribution, but you do not pay a tax on the appreciation.

Of course there are some special rules and limitations.  Our Congress has decided if you can’t deduct the entire gift in the year, then you can “carryover” the part of the charitable deduction and it will be an allowed deduction in the next five years.

There are percentage limitations for each year based on the Adjusted Gross Income (AGI) and the type of item given and whether the donation is made to a charity for use in their mission or if they will keep and use it (ie vehicle).

Generally contributions of capital gain property (stocks) is limited to 30% of the AGI each year.

If the item given is “ordinary income property” like inventory from your store, the deduction is limited to your tax basis-is not the fair market value.

Of course if you have a cost or tax basis of $15,000 in a stock and the fair market value is less than that, it would be best to sell the stock, claim your capital loss and give the charity a check.

The type of charity makes a difference also.  We mostly see gifts of appreciated property to the basic churches and charities (Code Sec. 501(c)(3) organizations).

You may want to consider “bunching” your other itemized deductions in the year of the special gift.  For example, choose to pay some of your property tax in the year of the gift instead of the following Jan. and March.

Most charities work with a stock broker so they can receive the gift of common stock.  If the stock is not listed on a stock exchange, special valuation rules will apply.

Making that special gift helps the church or charity now, not years from now.

Did you hear “Joy is a choice, not an outcome” Beth Johnson.