If you have owned a stock for more than twelve months, it can be an excellent asset for funding an outright or planned gift. If you sell the securities, you will be liable for tax on the gain, leaving you with less cash to give or reinvest. When you give the securities outright, you pay no capital gain tax and qualify for an income tax deduction for the full market value on the date of the gift. Note that deductions for gifts are subject to a number of limitations depending on the nature of the property you contribute, your adjusted gross income, and other factors.
The benefits of using securities for planned gifts vary by the type of plan. For example, if you are the primary income recipient of a charitable gift annuity funded with appreciated stock, you pay only a portion of the gain, and that tax is spread over your life expectancy. If you fund a charitable remainder trust with stock, there is no reportable gain at the time of the gift.
Example:
You wish to contribute $100,000 to fund an endowed scholarship. You have appreciated securities worth $100,000, with a cost basis of $10,000.
If you sell the securities, you will be liable for tax on the $90,000 gain. At the 15% capital gain rate, this will leave you with $87,500, requiring you to dip into other assets to reach your goal of a $100,000 gift.
If, alternatively, you contribute the securities directly to Gettysburg College, you fully fund the scholarship, qualify for an income tax deduction for the face value of the gift, and save $13,500 in capital gain tax. This method substantially reduces your out-of-pocket cost.
| Sell stock, give cash |
Give stock directly | |
| Stock Value | $100,000 | $100,000 |
| Cost Basis |
$10,000 |
$10,000 |
|
Tax on gain (at %15) |
$13,500 | $0 |
| Net available for gift | $87,500 | $100,000 |
See also instructions for transferring stock or securities.
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