# Net Cost of Charitable donation of appreciated stocks

On 11/12/2017 7:16 AM, Not A Clue wrote:

All I did was share the link. :)
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On 11/7/2017 10:00 AM, Not A Clue wrote:

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.
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On Saturday, November 11, 2017 at 1:54:59 PM UTC-5, BignTall wrote:

Thanks for the detail explanation.
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On Tuesday, November 7, 2017 at 8:03:02 AM UTC-8, Not A Clue wrote:

Let's take another look at the scenarios with some more calculations, which unfortunately don't all fit on one line. This looks at these cases: 1. You don't do anything. 2. You sell the stock and keep proceeds. 3. You sell the stock and give proceeds to charity. 4. You give the appreciated stock to charity. I calculate the tax as you suggest and then look at the change to your wealth and what the charity gets. In calculating your wealth, I include the unrealized tax as well.
35% 30% Cash Capital Case Income Sale Deduction Tax 1 1000 0 0 -350.00 2 1000 100 0 -380.00 3 1000 100 135 -332.75 4 1000 0 135 -302.75
Unrealized Wealth + Case Asset Basis Tax 30% Wealth Charity Delta Charity Delta 1 135 35 -30 755.00 0 0.00 755.00 0.00 2 135 135 0 755.00 0 0.00 755.00 0.00 3 0 0 0 667.25 135 -87.75 802.25 47.25 4 0 0 0 697.25 135 -57.75 832.25 77.25
So, the difference in your wealth between 3 & 4 is \$30 more in your pocket, but it still costs \$58 to you. But the charity gets \$135. The final delta is the net transfer of money from the government to the charity from the charitable deduction.
Case 4 is better than case 3 for you, but worse for the government. The charity comes out the same in either.
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