Executor Art Collection QTIP Trust portability Life insurance Portability Probate Original Will Estate Planning Estate Plan Estate Planning Estate Planning Asset Protection Strategies

Is Donating Appreciated Assets Right For You?

If you’re charitably inclined, you probably know that donations of long-term appreciated assets, such as stocks, have an advantage over cash donations. However, in some instances the roles can be reversed, and selling appreciated assets and donating the proceeds may be a better strategy for you.

That’s because adjusted gross income (AGI) limitations on charitable deductions are higher for cash donations. In addition, if the assets don’t qualify for long-term capital gain treatment, there are different deduction rules.

Tax Treatments By Type Of Gift
All things being equal, donating long-term appreciated assets directly to charity is preferable. Not only do you enjoy a charitable deduction equal to the assets’ fair market value on the date of the gift (assuming you itemize deductions on your return), you also avoid capital gains tax on their appreciation in value. If you were to sell the assets and donate the proceeds to charity, the resulting capital gains tax could reduce the tax benefits of your gift.

However, all things aren’t equal. Donations of appreciated assets to public charities are generally limited to 30% of AGI, while cash donations are deductible up to 60% of AGI. In either case, excess deductions may be carried forward for up to five years.

Work The Math
If you’re contemplating a donation of appreciated assets that’s greater than 30% of your AGI, crunch the numbers first. Then determine whether selling the assets, paying the capital gains tax, and donating cash up to 60% of AGI will produce greater tax benefits in the year of the gift and over the following five tax years. The answer will depend on several factors, including the size of your gift, your AGI in the year of the gift, your projected AGI in the following five years, and your ability to itemize deductions in each of those years.

Before making charitable donations, discuss your options with us. We can help you make charitable gifts at the lowest tax cost.

Related Articles

Talk with the pros

Our CPAs and advisors are a great resource if you’re ready to learn even more.