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A contribution of appreciated securities can yield two very different results depending on how you donate it. Donating securities directly to a charity to sell is cost- and tax-effective, while selling the securities and gifting
the proceeds may minimize your savings.
The math: Suppose you are a taxpayer with $500,000 of adjusted gross income and wish to contribute to charity. You own appreciated securities with a market value of $100,000 that you purchased for $10,000 more than one year ago. Below are two options for donating appreciated securities.
|Sell securities and donate cash||Donate securities in-kind|
|Sell securities and donate entire proceeds of sale to charity.||Donate securities directly to charity.|
|Realize $90,000 gain and pay $18,000 in capital gains tax with money from another source.1||Pay no capital gains tax.|
|Deduct $100,000 from taxable income and save $36,680 in income tax.2|
|Charity receives $100,000.|
|After taxes, the gift costs you $81,320.||After taxes, the gift costs you $63,320--
a savings of $18,000.
1The capital gains tax is calculated by multiplying the $90,000 gain by the 20% long-term capital gain rate.
2The overall limitation on itemized deductions (the "Pease limitation") reduces the deduction by $7,218. The 39.6% tax rate, therefore, applies to a deduction of $92,500.
Note: This is a simplified hypothetical situation for illustration purposes only. Please consult a tax advisor before donating appreciated securities.