Donating Appreciated Stock to Charity

By Clarity Point on December 16, 2019

“It’s better to give than to receive.”

For many of us, the holiday season is an ideal time to prioritize giving. It can be a wonderful feeling to spend money on others and donate to favorite charities or nonprofit organizations. If you are feeling charitably inclined and have assets in a non-retirement account, it’s possible to both give and receive at the same time. Opting to donate appreciated securities from those accounts can be an efficient, mutually beneficial way to give to a charity or a non-profit organization.

Benefits of Securities Donations

The longest bull market in US history has helped to create unrealized capital gains in many investors’ accounts. Selling some of these appreciated holdings is often advisable to rebalance your portfolio and keep it in line with your goals and risk tolerance. When these investments are sold, however, the account owner realizes capital gains which can generate capital gains taxes of up to 23.8% (depending on your tax bracket).

When you donate appreciated securities directly to a charity instead of selling them, you avoid paying that capital gains tax. The market value of your gift of appreciated securities is considered an itemized deduction (Schedule A), up to 30% of your Adjusted Gross Income. For investors who do not itemize their deductions, they don’t get a tax deduction for cash donations but would still get a tax benefit from donating appreciated securities because of the avoided capital gains tax. Because the donated security was never sold, no capital gains tax is owed on the appreciation. The charity or non-profit you are donating to doesn’t pay capital gains taxes on that appreciation either.

Not owing capital gains taxes on the appreciation of your holdings is just one of the many benefits of gifting appreciated stock to charity. By donating appreciated securities directly to the charity or organization of your choosing, you are promoting the causes most important to you and likely increasing your effective net tax benefit. Additionally, the cash you would have donated can instead be deposited into your investment account to replace the donation, and then invested for diversification.

How Donating Appreciated Stock Can Benefit You

Take a look at the chart below to compare the tax savings of donating appreciated securities directly vs. donating cash vs. selling securities and donating cash.

Timing Your Donation

In order to benefit from these tax advantages, the security being transferred must have been held for a minimum of one year. If you’re looking to obtain a deduction for the current tax year, it’s important to know that the stock transfer must be completed by December 31st. Because electronic transfers from your brokerage account are recorded on the day it’s received by the charity (not the day you initiate the transfer), you’ll want to plan your donation early to ensure receipt by year-end.

If you have questions about how this applies to your specific situation or if you could benefit, please don’t hesitate to reach out to a member of our team for specific recommendations.

HighTower Advisors do not provide tax or legal advice. This material was not intended or written to be used or presented to any entity as tax advice or tax information. Tax laws vary based on the client’s individual circumstances and can change at any time without notice. Clients are urged to consult their tax or legal advisor before establishing a retirement plan. 

* Lumina. (2014, December 17). Money matters. Retrieved from http://luminanews.com/2014/12/money-matters-37/. 

* Southern California Public Radio. (n.d.). Stock Gifts. Retrieved from https://www.scpr.org/support/stock_gifts.