Gifting Appreciated Securities

Even though tax season, 2008, is in full swing and any decisions about charitable giving have been completed for this tax year, it’s always a good time to plan for the future.

Some of us simply write a check to our favorite charity while others, at year-end, drop a few dollars into the Salvation Army kettle, but what if you plan to make a large gift to a charity in 2009—and, as we all hope will be the case, an upturn in the market provides you with appreciated securities? If that occurs, you may want to consider gifting appreciated securities for three reasons:

  • You can avoid capital gains tax on the shares transferred — a great way to get those low-basis shares out of your account at no tax cost. 

As an example, suppose Rob and Amanda owned 300 shares of a publicly traded stock that they purchased at $12.00 a share in 2003, and the current value is $33 a share. If they sold the stock in the market, they would have a taxable, long-term capital gain on the difference between their cost and what they would receive from the sale ($33 minus $12 = $21 capital gain per share. 300 shares X $21.00 = $6,300 in capital gains).  Rob and Amanda could sell the stock, pay the tax on the capital gain, and donate the proceeds.

If, instead of selling the stock, they gave the 300 shares to their charity, they would not incur any capital gains tax. In this scenario, the charity receives more than it would receive if Rob and Amanda first sold the stock and then donated the proceeds after deducting the capital gain taxes. Also, Rob and Amanda receive a greater tax deduction by giving the stock directly to the charity and avoiding the capital gain tax.

  • Your charitable income tax deduction will be based on the high/low average price on the date of your gift, rather than on what you paid for the stock.

In the example above, Rob and Amanda’s charitable deduction is based on the $33 per share value (for a total gift of $9,900300 shares X $33 = $9,900).  Even though their total purchase price was $3,600 ($12 X 300), they are allowed to take the fair market value of the stock as the amount of their charitable deduction.

  • Gifting stock does not use any of your available cash, making it available for gifts to family members or other small gifts to charity.

Although the example cited here uses publicly traded stock, other potential assets include appreciated artwork, real estate or even closely held stock.  Most charities already have brokerage accounts established.  Simply call your favorite charity and ask them to send you a copy of the transfer instructions. You may find this is a great way to help your favorite charity while planning wisely for yourself and your family. ”


Robert Hehmeyer III, J.D.

Robert is the professional consultant for Steve Finerty and Linda Pietroburgo.

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