ACTUAL COSTS TO DONOR

FOR GIVING APPRECIATED ASSETS

by Richard Johnson, Vice President · Thompson & Associates

2311 Bridger Rd, Jonesboro, AR 72401 · 870.476.0942 · richard@ceplan.com

Why should I give appreciated assets?

The federal tax law makes gifts of appreciated assets (stocks, bonds, mutual funds, real estate, closely-held corporate stock) owned for more than one year advantageous for people who may use such assets in giving to charity.

  • Appreciation on charitable gifts is not subject to capital gains tax.
    •
  • You receive a tax deduction for the full value of the asset given to charity.
    •
  • The actual cost to you of making the gift could be significantly lower than the value of the gift when using appreciated assets.
    •

    Example of the

    After-Tax Cost of Giving $10,000

     

       A

           B

           C
    Asset Value

    $10,000

    $10,000

    $10,000
    Tax Deduction

    -2,700

    -2,700

    -2,700
    Cap. Gains Tax

    +1600

    0

    -1600
    After-Tax Cost to Donor

    $ 8,900

    $ 7,300

    $ 5,700

    Option "C" in the graph above illustrates the cost of giving stock with a value of $10,000 and a cost basis of $2,000 directly to a charity. By giving the appreciated stock directly to charity, the donor avoids paying capital gains tax that would otherwise be paid if the stock were sold and only the proceeds from the sell were given to charity. By giving the appreciated stock directly to charity, the donor also receives a charitable deduction for the full value of the stock. Thus, the actual cost to the donor of making the gift is the value of the stock less the avoided capital gains taxes and less the taxes saved due to the charitable deduction. You should consult your attorney or financial advisor before selling a large asset or making a major gift.

    Calculations are based on federal income tax rate of 27%, capital gains rates of 20% federal.

    Actual costs may vary based on state income taxes.