Donating Appreciated Publicly Traded Securities to Charity

by Barbara Benware, Vice President – Investment Oversight and Risk at Charles Schwab


Donating Appreciated Stock to Charity

For philanthropically-minded investors, publicly traded appreciated stock can be among the most tax-advantaged items to donate to charity. Contributing such assets may enable the donor to potentially eliminate capital gains tax liability on the sale of the assets, enjoy a current year tax deduction if the donor itemizes while allowing the charities they support to receive the most money possible.

What Is Appreciated Stock?

Appreciated securities are investments that have increased in value from the time they were purchased, and can take the form of publicly traded stock, exchange-traded funds (ETFs), closely held stock, or mutual funds. For example, if a stock was purchased for $30 per share and sold for $50 per share, the stock has appreciated by $20 per share. When appreciated stock is sold, the owner generally realizes capital gains equal to the appreciation and may be liable for either short-term or long-term capital gains taxes, depending on the length of time the investment was held.

Charitable Tax Planning Opportunity: Donate Shares of Appreciated Stock to Charity

Taxpayers who are considering current year charitable contributions and are also facing long-term capital gains taxes on appreciated stock that they have held for more than a year can realize a much more favorable income tax result and charitable impact by making a timely donation of the appreciated stock directly to charity. If a donor sells the stock first and then donates the cash proceeds to charity, the donor may be subject to capital gains taxes on the proceeds from the sale of the stock. But if a donor contributes appreciated stock held for more than one year directly to a donor-advised fund account at Schwab Charitable™ or another public charity, the donor can potentially eliminate capital gains on the sale and deduct the fair market value (FMV) of the donation, if the donor itemizes.

Content Created By Charles Schwab Charitable

 

Hypothetical Example (assuming investment has been held for more than a year)

 

Sell stock & donate net proceeds (cash) to charity

Donate stock to Schwab Charitable Fund or another charity

Assumed Fair Market Value of Stock to be Donated

1,000 shares @ $50 per share= $50,000

1,000 shares @ $50 per share= $50,000

Long-Term Capital Gains Tax Paid or Avoided1

$10,000 paid

$10,000 avoided

Amount Donated to Charity (Cash or Value of Stock)

$40,000

$50,000

Value of Charitable Income Tax Deduction2

$15,840

$19,800

Total Donor Tax Savings

$5,840

$19,800

 

 1 Assumes cost basis of $5,000, that the investment has been held for more than a year and that all realized gains are subject to a 20% federal long-term capital gains tax rate. Does not take into account any state or local taxes, or potential Medicare surtax resulting from net investment income.

2 Assumes donor is in the 39.6% federal income tax bracket and does not take into account any state or local taxes. Certain federal income tax deductions, including the charitable contribution, are available only to taxpayers who itemize deductions, and may be subject to reduction for taxpayers with adjusted gross income (AGI) above certain levels. In addition, deductions for charitable contributions may be limited based on the type of property donated, the type of charity, and the donor’s AGI. For example, deductions for contributions of appreciated property to public charities generally are limited to 30 percent of the donor’s AGI. Excess contributions may be carried forward for up to five years.