Gifts of Publicly Traded Securities

A portfolio of publicly-traded stocks and bonds is usually one of the most valuable assets in your possession. It's one that often carries substantial appreciation in value. The downside to assets that have increased in value over the years is the potential tax liability levied against your capital gain from securities.

With careful planning, you may be able to reduce -- or even eliminate -- federal capital gains tax liability. As stock and bond values increase, the taxes you owe on the capital gain generally also increases. But when you donate publicly traded stocks held long term (owned for more than one year) to The Servants of Mary, you generally avoid all capital gains tax liability associated with the appreciated value of the stock. Better yet, you may take the full fair market value of the stock gift as a charitable deduction on your income taxes. The maximum deduction during any given tax year is 30 percent of your adjusted gross income. Keep in mind, if you are unable to take the entire deduction in one year, you may carry the excess deduction forward for up to five additional years.

Gifts of Stocks and BondsHere are some things to consider when donating securities to The Servants of Mary.

If you have appreciation in the value of your securities, there are two options:

  1.  If you own shares you wish to keep in your portfolio, giving us the stock and using cash to buy the same stock through your broker generally provides the same income tax deduction with a new, higher basis in the newly acquired stock.
  2. When appreciated property is held long term (more than one year), is used for a charitable gift and the donor would have otherwise sold the stocks for market or other reasons, two tax savings may result. First, the donor may earn a charitable deduction for the full fair market value rather than the original cost. Second, the donor may be able to eliminate the capital gains tax associated with the appreciated stock value.

The income tax deduction for gifts of long-term capital gain property to qualified public charities is limited to 30 percent of the donor's adjusted gross income in a particular year, as opposed to the 50 percent annual limitation for cash gifts to public charities. For most donors, this limitation is not an issue and the total value of the gift will constitute a tax deduction since any unused deduction can be carried forward for five years.

How Much of Your Estate Will Go to Taxes?

When managing capital gains, three features of the federal tax rate structure are important to understand:

1. The difference between the top federal tax rate applied to long-term gain and the highest tax rates applied to ordinary income is currently significant. For taxpayers who fall within the higher tax brackets, long-term capital gains tax is generally more attractive than ordinary income tax.

2. The current tax rate for federal estate and gift taxes.

3. The tax rate on generation-skipping transfers of assets. Should you pay capital gains tax now instead of a potentially higher gift or estate tax later?

Using Gains to Achieve Your Philanthropic Objectives

Income tax charitable deductions have become increasingly significant in reducing taxable income, particularly since tax reform has eliminated many other tax deductions.

You give us 1,000 shares of publicly traded stock he has held for more than one year. Their fair market value (the average of high and low trades for the day of the gift multiplied by the number of shares) is $12,000; their original cost, $5,000. Your marginal federal income tax rate is 28 percent, and you are not subject to state or local income taxes.

The $4,410 of total taxes ($7,000 long term capital gain x 15 percent = $1,050 capital gains tax added to $12,000 x 28 percent = $3,360 income tax) avoided that the government "contributed" to the gift transaction nearly equals your net cost. Best of all, you made a gift of $12,000 to your favorite charitable organization.

On the other hand, if you have stock losses, sell the stock yourself to realize the loss and take the allowable deduction for tax purposes. This generates a charitable deduction by donating the cash proceeds of the sale to The Servants of Mary.

For additional information on gifts of stocks and bonds, please contact Fr. Lawrence Choate at 800-778-4400.