Gifting Low Basis Stock to Charity

Should you give cash or donate stocks that have achieved long-term capital gains as you make gifts to charitable organizations?

Charitable gifts to organizations are made with the best of intentions.  But in addition to being well intended, giving to charity should also be well executed.  In certain cases, it may be in the donor’s best interest to give stock which has achieved long-term capital gains instead of cash.

Consider the following example:

Donor has $50,000 that he or she is giving to a group of different 501c3 organizations.  Owning $50,000 of stock purchased at $18,000 gives the donor the option to do intelligent tax planning.  When the stock is sold, $32,000 of profit will be taxed at 25% (20% to Federal Government and 5% to State).  Thus, $8,000 will go to the government leaving $42,000 for the donor. If stock were donated to charities instead of the $50,000 in cash, the donor would have met his or her commitments and have $50,000 in cash rather than $42,000.

Some people would prefer to hold onto the stock.  A better tactic would be to use the $50,000 in cash and buy back the stock when feasibly possible, giving the donor a new basis cost of $50,000 rather than $18,000.  Thus the charitable gift is made with stocks and the $50,000 in cash buys back the stock decreasing the amount which could be taxable if the stock continues to grow over time.

To facilitate the gifts to various charitable organizations, the donor may want to set up a Donor Advised Fund (minimal charges and flexibility to distribute to the charitable organizations at the donors discretion).