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Securities
Gifts of appreciated securities often provide more advantages to the contributor than outright cash gifts. The IRS allows one of its most significant tax breaks for these gifts.
Benefits
- You receive gift credit and an immediate income tax deduction for the fair market value of the securities on the date of transfer, no matter what you originally paid for them.
- You pay no capital gains tax on the securities you donate.
- You can direct your gift to a specific fund or purpose.
- You can have the satisfaction of making a significant gift now or funding a life-income gift that benefits Mission Catalyst later.
How It Works
Considerations
- Don't sell the stock first! Even though you give us the proceeds as a gift, the IRS will impose capital gains tax on your sale, wiping out the benefits of this arrangement.
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Don't contribute stock that has declined in value! First, the fair-market deduction rule works against you: if you bought stock for $50,000 and it's now worth $30,000, your charitable deduction will be limited to $30,000. Second, you won't earn a capital loss by making the transfer to us, either. It is better to sell depreciated stock, claim the resulting tax loss as one deduction, then make a deductible cash gift to Mission Catalyst with the proceeds.
Example
Mrs. Jones gave 100 shares of long-term appreciated stock for which she paid $10 per share 15 years ago. The stock had an average market value of $50 per share on the gift date, for a total gift to Mission Catalyst of $5,000. Because her cost was $1,000 ($10/share x 100), the capital gain, had she sold the stock, would have been $40 per share, or $4,000. A gift is not a sale. There is no capital gains tax, and the charitable deduction is the average fair market value of the gift of $50 per share -- or $5,000.
The deduction also increases Mrs. Jones' spendable income, because her income tax is less in the gift year and in any year to which the deduction is carried over.
Mrs. Jones' adjusted gross income in the year of the gift was $21,000. She could apply the entire $5,000 deduction in the gift year, because she could deduct up to $6,300 ($21,000 x 30%). If her adjusted gross income was only $15,000 in the gift year, she could apply $4,500 ($15,000 x 30%) in the gift year and carry over $500 to the following tax year.
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