The positive performance of the stock market in 2013 creates an opportunity for the charitable minded who also want to minimize their income taxes – donating appreciated non-cash assets. Non-cash assets could be in the form of appreciated stock, real estate, or collectables. Gifting them to charity offers the donor a creative option for fulfilling their charitable goals, while reaping tax benefits.
Donating appreciated assets makes the most sense when a taxpayer has a long-term capital gain asset with a low adjusted tax basis. The donor deducts the current appreciated value of the asset as a charitable gift and avoids the capital gain tax incurred if the asset were sold. It is nearly always better to give appreciated assets than cash.
Before making a significant contribution, taxpayers should discuss the gift with a financial adviser or tax planner familiar with non-cash gifts. Typically, a taxpayer can deduct the full fair market value deduction, subject to 30% of their adjusted gross income (AGI) in the first year. If the amount of the deduction exceeds 30% of AGI, the excess can be carried forward an additional five years. There is no capital gains tax at the time of the gift. Fair market value of publicly traded securities is readily available. However, a qualified appraisal will be needed for real estate and collectibles to determine the amount of the charitable donation within a defined time period. Form 8283 is prepared by the appraiser and becomes part of the donor’s tax return. The receiving charity provides a tax acknowledgment letter describing the property and the date contributed. The charity must also provide an additional letter for donations of tangible personal property (such as artwork), saying they intend to use the property exclusively to support its charitable mission. Failure to include all documentation can result in the IRS disallowing the deduction.
Despite the significant advantages of donating appreciated assets instead of cash, 97% of charitable gifts are still made with cash. If you are charitable minded, don’t overlook these benefits.