Gifting Appreciated Stock

When it comes to donating to charity, most people think in one of two ways - giving cash or their time. By giving cash, the charity is able to put the money to good use right away. By giving time, the charity benefits from your talents in real time. These are both wonderful ways to give.

However, there is a way you may be able to give money to a charity, while also receiving tax benefits in addition to the charitable deductions you receive from giving cash. This extra benefit is received when gifting appreciated stock.

With the holiday and giving season right around the corner, you may be wondering if this is a viable option for you. Here’s how you can quickly find out if gifting appreciated stock is for you, what the total benefit to you is, and how to go about facilitating the process.

See Also: Charitable Giving - Today and Tomorrow

Cost Basis

You first want to look at your taxable investment accounts and see if you have stock that has risen in price since you first bought it. The first value to find is your Cost Basis, which is the price you paid for said stock. The second value to find is the Current Value, which is the price of the stock today.

For example, let’s say you purchased Apple (AAPL) in 2010 for a price of $40.00 - this is your Cost Basis. You look over a few columns and see that the Current Value of AAPL is $150.00. This shows that your stock has appreciated by $110.00 per share, which is a long-term capital gain.

Please note, this only applies to investments in taxable accounts, not retirement accounts like a 401(k) or IRA.

Tax and Gifting Benefits

You have found a stock that has appreciated in value and you’d like to donate it to charity. Let’s first look at the monetary benefits of doing so. By gifting appreciated stock to charity, you do not have to realize the appreciated value (amount above cost basis) as a long-term (taxable) gain.

Continuing the example above, we will assume you own 100 shares of AAPL and would like to donate the shares to your charity of choice. Your Cost Basis in AAPL is $4,000, with a Current Value of $15,000, leaving you with a potential long-term capital gain of $11,000.

By donating the stock directly to your charity, the charity will receive the full $15,000.

If you were to sell the stock yourself, pay taxes on the gains, and then gift the remaining value to charity, you would only be gifting $12,382. This is because at a long term capital gains rate of 20% + a 3.8% Medicare surtax, you will have a tax bill of $2,618 from the $11,000 in long-term capital gains.

Please note, the amount of tax owed will vary based on your particular tax bracket and what state you live in.

By gifting appreciated stock directly to a charity, instead of selling yourself and gifting the net cash proceeds, you are able to provide an extra $2,618 to the charity!

Transferring Stock To Charity

Now that you see the benefits of gifting appreciated stock, you are wondering how you go about this process. Fortunately, with today’s online investment accounts, the process is pretty seamless.

First, you will want to contact your charity to make sure they are willing to accept your appreciated stock.

Next, your charity will open an account at the institution where your investment account is held (like TD Ameritrade or Vanguard).

Finally, once your charity’s account is open, you will be able to authorize the transfer of stock from your account to the charity.

 

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