Donating appreciated securities in-kind

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 $7,500. 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.