Net Cost of Charitable donation of appreciated stocks

I believe that is correct but will let others comment. But I want to add one more question for the pros or those who have actually done this:

Is the value of the donation the FMV of the stock, or FMV less selling costs (commissions, etc.) for when the charity sells the stock? Isn't that what the charity will state as the value in their documentation they send to you?

You forgot to include the tax deduction for the donation. So your income tax would be 35% x (1,000 - 135), just as in case 2.

If you're comparing donating the stock vs. selling the stock and donating the proceeds, the only difference is in whether you have to pay LTCG tax. The deduction for the donation is the same in either case. So it's a no-brainer -- if you have an unrealized gain, it's always better to donate the stock.

On the other hand, if you have stock you want to get rid of, and you're deciding whether to donate it or sell it and keep the cash, that's harder to decide. Is that why you didn't include the tax deduction in case 1 above?

Pub 526 seems to say that it's the FMV at the time of the donation. However, I do my major contributions by transfering stocks or mutual funds to my Fidelity Charitable Gift Fund. They send me a pre-filled Form 8283, with the price they sold the shares for, and I use that.

Normally 50%, but there are some 30% organizations.

See Pub 561. It's the average of the high and low prices on the day you donated it. If it didn't trade that day, there are more rules about that.

...Normally 50%, but there are some 30% organizations.

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I'm pretty sure that if the fair market value of the donated appreciated capital gain property is the deduction, there's a 30% of AGI limit on the charitable deduction and any excess deduction over the 30% will carry forward for five years.

IRS does a really lousy job of explaining this limit on Page 14 of their Pub 526:

"A special 30% [of AGI] limit applies to contributions of capital gain property to 50% limit organizations. How­ever, the special 30% limit doesn't apply when you choose to reduce the fair market value of the property by the amount that would have been long­-term capital gain if you had sold the property. Instead, only the 50% limit applies."

Yes. I am trying to determine the net cost to me -- the difference to my bottom line between keeping the cash and donating the stock.

On further thought, it appears that I may be over-thinking it. The net cost is $87.75 ($135 -35% tax savings) ???

What is "the time of donation"? The day I give the charitable organization a signed form that I am donating the stock? Or the date the stock is transferred to the charitable organization?

What is considered as the day of donation -- the day the stock is transferred out of my account? The day I give the charitable organization a signed form that I am donating the stock? Some other date?

TIA

i.e. if I deduct only my cost basis in the stock/property, 50% limit applies. Otherwise the limit is 30%?

TIA

For "appreciated" long term capital gain property, I think that's the rule.

It appears to be the day you transfer control of the asset.

R's, John

Two comments.

2) If the charity knows what it is doing, (not all do) they should report that you have donated "x shares of ABC" without putting a value on the donation. The value of the donation is not the cash received upon sale (neither gross nor net of transaction costs) as that amount will almost always be different from the value upon transfer - stock prices go up and down constantly.

Ira Smilovitz, EA

I hope someone can help me on this question -- the net cost of donating a appreciated stock vs keeping the cash.

TIA

The problem is that you're comparing apples and oranges. And there are other unknowns that affect it.

If you didn't donate the stock, but held on to it, its value depends on how long you'll end up holding it, and how much the stock appreciates during that time. When you do eventually sell it you'll have to pay LTCG tax, and if it pays dividends you'll have to pay taxes on those in the interim.

And if you don't donate the stock, does that mean you're not going to make a charitable contribution some other way?

Is there ever a time when putting money out is worth more than not putting money out? Even if you get a deduction that's much larger than what you paid for the stock, that's only worth a fraction of what you would end up with if you sold the stock and kept the cash, even after paying the tax.

I suppose to an extent it will depend on what state you're in and how much state tax would be imposed. If your marginal tax rate is more than 50% it might be mathematically possible to come out ahead by making the donation. But if not, I just don't see it.

One approach would be to do sample tax returns both ways and see how they comes out.

I am comparing (1) selling the stock "now" and keep the cash and (2) donating the stock. If I donate the stock, I think I will hit the 30% limit. But that is a timing issue; and to keep things simple, I'll ignore the timing issue.

I know if I keep the cash, I will have $105 after LTCG tax. My states' deductions just picks up the #s from 1040 Sch A.

If I donate the stock, what is my *resulting* tax savings -- 35% of $135? In my original post, I also consider the $30 LTCG as a tax saving. But on 2nd thought, the $30 is deducted from the sales proceeds to determine what is left in my pocket -- if I keep the cash. So it seems that adding the $30 to my tax savings computation seems to be double-counting that $30.

So the net cost of the donation to my bottom line/cash in pocket is $57.75 (104 - (135*35%))???

TIA

I don't recall if it is just "listed property" (e.g., used cars, artwork) or all property which is not publicly traded, but, for SOME property not directly related to the charity's exempt purpose (non-example: clothes to Goodwill), the donor's deduction is limited to what the charity can sell the property for.

On 11-Nov-17 5:56 AM, Not A Clue wrote: ...

...

A) Nothing says you would have to do the entire donation in one calendar year, and

B) Even if do, you can carry over any excess above the 30% limit for up to 5 years...

But, as one heavily involved with a couple local nonprofits, I'd say the key is not taxes but whether you do/do not want to make the gift.

$0.02, imo, ymmv, etc., etc., etc., ...

I find the analysis clearer when focusing on after tax assets instead of tax rates.

Initially you have an appreciated asset with after tax value of $105 (FMV of $135 less the embedded LTCG tax of $30). Whether you keep or dispose of the appreciated asset, it is worth $105 to you today.

Scenario 1: You keep the appreciated asset and have an asset worth $105 to you.

Scenario 2: If you sell the appreciated asset, pay the LTCG tax, and donate the $105 in net proceeds to charity, you lose the appreciated asset and you end up with a deduction of $105. Using your numbers, this results in a tax reduction of 35% x $105 ($36.75). At this point, the appreciated asset is gone and you have $36.75 in cash. You have given up an asset worth $105 and received $36.75 for a net cost of $68.25.

Scenario 3: If you donate the appreciated asset directly to charity, you lose the appreciated asset and you end up with a deduction of $135. Using your numbers, this results in a tax reduction of 35% x $135 ($47.25). At this point, the appreciated asset is gone and you have $47.25 in cash for a net cost of $57.75 ($105-$47.25).

Scenario 2 is unambiguously inferior to Scenario 3. Both you and the charity wind up with less.

Even if you take the Standard Deduction, Scenario 3 is better than Scenario 2. Scenario 3 is better for the charity since it receives $135 in assets instead of $105. While Scenario 2 and 3 both appear to cost you $105, the higher AGI that shows up on your tax return with Scenario 2 may generate additional unexpected costs due to the complexity of the tax system.

And for such "what if" scenarios this spreadsheet comes in handy: