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Benefits of Giving Securities

Giving via Securities: Stock and Appreciated Property

[ See also: Instructions to be used when transferring stock ]

There are definite tax advantages in giving property that has appreciated in value and has been held long-term.

Here’s how it works:

Tom has 200 shares of ABC Corporation stock that he purchased for $20 a share three years ago. The current value of ABC Corp. stock is $47 per share. If Tom sold the stock, he would have a taxable, long-term gain on the transaction that can be calculated in the following manner ($47 minus $20 = $27 capital gain per share. 200 shares X $27 = $5,400 in capital gains).

Tom could sell the stock, pay the capital gains tax and donate the remaining proceeds to Wake Forest. If, however, Tom donates the stock to Wake Forest, he would not incur any capital gain and he could deduct the entire current value of the gift (200 shares X $47 = $9,400) as a charitable gift.

Sell Stock & Donate the Proceeds
Tom’s Capital Gain (15%) $5,400
Tom’s Capital Gain Tax $810
Tom’s Tax Savings (33% bracket) $2,834
Actual Gift to Wake Forest $8,590
Donate the Stock to Wake Forest
Tom’s Capital Gain (15%) $0
Tom’s Capital Gain Tax $0
Tom’s Tax Savings (33% bracket) $3,102
Actual Gift to Wake Forest $9,400

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An income tax deduction is allowed for the full fair market value of the property given. In addition to receiving a charitable deduction for the full fair market value of such a gift, the donor pays no capital gains tax on the appreciation when the gift is made (although the alternative minimum tax implications must be considered). Such a gift is deductible up to 30 percent of a donor’s adjusted gross income. Any excess can be carried over for five additional years.

Donors can elect to deduct a gift of long-term appreciated property at the 50 percent ceiling of their adjusted gross income. However, the donor must forgo the appreciation in computing the charitable deduction. In other words, the deduction is limited to the donor’s cost basis.

A donor considering a gift of property that has gone down in value would be better off selling the property to realize a deductible loss and then contribute the proceeds to charity and obtain a charitable deduction.


Closely-Held Securities

Usually a gift of closely-held securities, such as one from a family corporation, qualifies for the same advantages (a full deduction, no capital gains tax, and the 30 percent limitation) that are available when marketable securities are given.

An attractive alternative is available to the donor who does not wish to give up control over any part of his or her closely-held stock. This arrangement initially involves an outright gift by the owner of the closely-held stock to Wake Forest; at a later date the corporation could purchase the stock from Wake Forest for cash.

As long as Wake Forest is not obligated to sell the stock to the corporation, the transaction should produce no adverse tax results.


Tangible Personal Property

Gifts of tangible property such as art, jewelry, antiques, gold or silver, offer an immediate tax deduction. The amount of the deduction is determined by whether or not the gift is related to the educational purposes of the University.

If the use of the contributed property is related to the purposes of Wake Forest, the donor is entitled to a charitable deduction for the full fair market value of the property, subject to the 30 percent ceiling and carryover.

If use of the contributed property is unrelated to the exempt purposes of the University, the donor is entitled to a charitable deduction for his or her cost basis in the property. When the donor is the creator of a contributed tangible asset, the deduction is limited to the actual cost of producing the asset.