Donate Appreciated Property to Turbocharge Your Giving
Charitable gifts of appreciated property eligible for long tern capital gain treatment can generate some great tax benefits. Gifts of such property provide a double benefit - a charitable deduction, in most cases, for the full fair-market value of the property plus avoidance of any potential capital gain tax.
Charitable deduction. A donor who contributes long-term capital gain securities or real estate (i.e., property held for more than one year) gets a charitable deduction equal to the property’s full fair market value (FMV), not just what he paid for it. Gifts of short-term capital gain property provide a deduction for only the donor’s cost basis in the property.
A donor can deduct, in the year of the gift, the full fair market value of the long term appreciated property, subject to a limit of 30% of his adjusted gross income (AGI). Any excess can be carried forward for up to five years.
Special election. A donor can choose to deduct gifts of long term appreciated property under a 50% AGI limit, rather than the 30% limit previously mentioned. However, as a trade off, the donor’s deduction for the long term capital gain property will be limited to the property’s cost basis.
Avoid capital gain. A donor who makes an outright gift of long term securities or real estate avoids paying capital-gain tax on the property’s appreciation. A donor can realize substantial savings by contributing the property rather than selling it and contributing the after-tax proceeds.
Remember, the rules are different for different types of assets and different types of charities. You should consult your tax advisor before making any decisions.
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Dangeau Law Firm, PLLC