Gifts of Stock

When you make a charitable gift, do you simply reach for your checkbook?

Donating appreciated assets instead can provide you with significant advantages.

AT-A-GLANCE

• Immediate income tax deduction for the fair market value of the asset
• Avoidance of capital gains taxes
• Gifts can be timed to match fluctuations in the capital markets

Donations of publicly traded stocks are a common, tax-wise method of making non-cash charitable gifts. Stocks which are highly appreciated represent the most attractive assets to give: they are easily transferred, and in most cases, easily valued for deduction purposes, without the need for a formal appraisal. The most common forms of stocks gifts are shares of stock, bonds and mutual funds. The typical donor of appreciated assets holds publicly-traded stocks that are highly appreciated in value and wishes to transfer them prior to a sale.

How Do I Make a Gift of Stocks?
How you proceed depends on how your individual stocks are held. If you hold the stocks in your possession, they may be sent directly to the Jewish Foundation for Group Homes. If the stocks are held in a brokerage account or on book entry with a company, you will need to work with your broker and/or the company to complete the transaction. The Jewish Foundation for Group Homes has separate instructions for transferring different kinds of assets and will work with you and your advisors to complete the transaction.

Instructions for Gifts of Stocks
Generally speaking, there are three categories for making contributions: gifts from accrued wealth, gifts from unrealized profits, and gifts from income.

Due to favorable tax provisions, one of the most popular ways of making charitable contributions is to contribute securities and other capital assets that have increased in value since they were acquired. Usually, the greater your income, the greater the tax savings. When “paper” profits are involved, the tax savings are substantial because you are giving appreciated assets rather than cash, and there is no liability for the capital gains tax. For these reasons, it’s possible to make contributions to JFGH at an extremely low overall cost. It’s important to remember to transfer the ownership and not sell the stock in order to avoid capital gains tax.

The federal government encourages charitable giving by allowing you to deduct up to 50% of adjusted gross income each year when a gift is in the form of cash, or up to 30% when payment is made through securities that have increased in value and have been held for more than one year and a day. In addition, if you are unable to use the entire amount of allowable tax deduction in one year, the excess tax deduction can be taken over the following five years until the amount is used up.

We appreciate your interest and generous support. Electronic delivery of stock shares is the most secure and expedient delivery process available and provides efficient internal control as well as cost savings. We also accept security certificates directly. Please follow the instructions below for making a gift of stock.

Important Facts You Should Know About a Gift of Stocks
Gifts of stocks provide a vehicle for giving that is less expensive than simply writing a check or paying by credit card. For example, if you paid $1,000 for your stock five years ago and the fair market value of that stock today is $3,000, you will receive an income tax deduction for the full fair market value, even though your cost basis in the security (what you paid for the stock) is only $1,000. The net tax benefit reduces the cost of your gift. To avoid capital gains tax, it is important to make your gift prior to selling the stocks.

EXAMPLES
Giving Cash
Suppose you wish to donate $10,000. If you write a check for $10,000, you will receive a $10,000 charitable income tax deduction. If you are in a 35% tax bracket (federal and state) and itemize your deductions, you will reduce your taxes by $3,500 ($10,000 x 35%). The net cost of your gift will be $6,500 ($10,000 - $3,500).

Giving Appreciated Stocks
Now, suppose that instead of giving cash, you donate $10,000 worth of publicly-traded stock, which you purchased five years ago for $2,000. First, just like the gift of cash, you will be able to claim a $10,000 charitable income tax deduction, thereby reducing your taxes by the same $3,500. In addition, you will avoid paying the capital gains tax you would have paid if had sold the stock rather than donating it to a charity.

If you sell the stock, you will realize an $8,000 long-term capital gain. If you are in a 20% capital gains tax bracket (federal and state), you will pay $1,600 in capital gains tax ($8,000 x 20%). However, by donating the stock instead of the cash, you could forever eliminate this potential tax liability. By giving stock instead of cash, the net cost of your gift will be further reduced from $6,500 to $4,900.

Limitations
The amount of charitable deduction you can claim in any one year is limited to a percentage of your adjusted gross income (AGI). For gifts of cash to public charities, the limit is 50% of AGI. For gifts of long-term capital gain property, the limit is 30%. In both cases, any deduction that exceeds the amount you can claim in the year of your gift due to these limitations may be carried forward for a period of up to five additional years.

For more information, contact the Development Department at 301-984-3839 or click here.