Helping deliver . . . a way to contribute. Gifting Appreciated Stock—Save Capital Gains Tax and Make a Larger Charitable Contribution Community Medical Center Foundation benefits from the volunteered giftplanning expertise of several professional advisers in Missoula and Western Montana. They are essential partners for us as we talk with donors about a variety of win-win gifting strategies. We asked adviser Andrew George to share such a strategy with our CMC Foundation friends and donors. Gifting Appreciated Stock—Save Capital Gains Tax and Make a Larger Charitable Contribution A donation of appreciated stock instead of cash can yield a greater benefit for both the donor and the intended charity. Consider Fred and Wilma, who want to donate to Community Medical Center Foundation (or any other qualified charitable non-profit). They have $11,000 of stock which they purchased for $1,000 many years ago. Below is an illustration of the greater benefit of the outright donation of the stock over selling the stock and donating the proceeds from the sale. Internal Revenue Service Publication 526 simplifies allowable charitable contributions. It may be found online at www.irs.gov. It is a pleasant read unlike much tax literature. It notes that the amount of charitable contribution is generally the fair market value of the property at the time of the contribution. If Fred, in his generosity, decides to sell the stock and give the proceeds to CMC Foundation, it will be subject to capital gains tax of 20% (15% Federal 10
and 5% Montana) on the portion of gain in the asset’s value. Here is an illustration:
$11,000 (1,000) _________ = $10,000 (2,000) _________ = $ 8,000 $ 9,000
sale price purchase price capital gain from sale, subject to 20% capital gains tax capital gains tax net gain from sale total charitable contribution to CMC Foundation ($8,000 net gain plus $1,000 purchase price)
If they choose to sell the stock, Fred and Wilma will pay $2,000 in capital gains tax. This would leave them $9,000 to make a charitable contribution— not the stock’s fair market value of $11,000. Instead, assume Fred consults his wife, Wilma, who recommends giving the stock outright to CMC Foundation. Based on the above IRS reference, the amount of charitable contribution is generally the fair market value of the property at the time of the contribution. In this case, their charitable contribution of stock would be the full $11,000. Fred and Wilma forego paying capital gains tax of $2,000 since it is being gifted directly to charity. The charity receives $2,000 in contribution it would not otherwise receive, and Fred and Wilma receive a charitable deduction for a gift of $11,000