Donating Appreciated Securities

In this section

Advantages of Donating Appreciated Securities

 

Consider the following example for donating a highly appreciated security:

A person wants to make a charitable donation, and holds 10,000 shares of ABC Corporation with a cost basis of $5 per share, and the stock has been held for longer than one year. The current market price is $50 per share.  This person will itemize deductions and has an income tax rate of 39.6%.  The combined capital gains tax is 28.8% (federal long term capital gain rate plus 3.8% Medicare surcharge and Missouri income taxes).

  • $50,000 will be gifted to charity if the appreciated stock is donated.
  • Only $37,400 will be gifted to charity if the stock is sold and the cash proceeds are donated.
  • The donor saves $19,800 in taxes if the stock is donated, but only saves $2,210 if the stock is sold and the cash proceeds are donated.

 

 Sell security and donate cash proceeds to charitable fund Donate appreciated security to charitable fund
Current Market Value of Security  $50,000
(10,000 shares @ $50/share)		  $50,000
(10,000 shares @ $50/share)
Capital gain $45,000
($50,000 proceeds – $5,000 cost basis)		 $45,000
($50,000 market value – $5,000 cost basis)
 Capital Gains Tax Paid  12,600
($45,000 x .288 rate)		  0
(no capital gains tax paid)
Amount available for Charitable Donation  $37,400
($50,000 – $12,600 capital gain tax paid)		 $50,000
($50,000 – 0)
 Value of Charitable Deduction  $14,810
($37,400 donation x .396 income tax rate)		 $19,800
($50,000 x .396 income tax rate)
 Total Donor Tax Savings
(value of deduction minus capital gains tax paid)		  $2,210
($14,810 – $12,600)		  $19,800
($19,800 – 0)