“Prosperity across Generations”

The Power (and surprisingly low cost!) of Making Charitable Gifts with Appreciated Assets

Making charitable gifts with highly appreciated (“low-basis”) securities rather than cash is an excellent charitable giving and tax planning technique. The calculator below illustrates how powerful it can be. When gifting low-basis securities, the donor a) gets a dollar-for-dollar tax deduction for their gift, and b) eliminates a sizeable tax liability. This combination is surprisingly strong, particularly for a top-bracket taxpayer in a high-tax state.

Example:

You are a California-resident company founder or venture capital investor with $1,000,000 of long-held stock with a cost basis of just $20,000. If you were to sell this stock outright, you would recognize $980,000 in long-term capital gains. These gains could be subject to a 20% long-term capital gain tax rate, a 3.8% Medicare surtax, and a 13.3% state income tax, leaving you with just over $676,000 after tax. Now, consider you instead make a generous $1,000,000 gift to your favorite qualified charity using this same block of stock. The charity will be able to immediately sell the stock and utilize the full $1,000,000 value with no tax consequences. Meanwhile, you will gain a tax deduction worth up to $476,000 based on a top Federal tax rate of 39.6% and a State rate of 13.3%. Compared to the $676,000 in post-tax proceeds you’d have from an outright sale, this $1,000,000 gift to charity cost you the use of just $200,000, or 20 cents on the dollar!

Differences in tax rates and cost basis will affect this calculation. To determine the effective cost of charitable giving in your situation, enter the current value of your investment, your cost basis in this investment, and your marginal Federal and State tax rates into the calculator below.

If the appreciated asset you intend to gift has been held less than one year or is taxed as a collectible (such as art, wine, jewelry, or automobiles), please check the “ordinary income” box, as your tax savings could be even greater. Gifts of collectibles are subject to strict requirements for donors to benefit from a full deduction. If you wish to make charitable gifts of collectibles please consider contacting us as specialized strategies will generally be necessary to ensure you are able to maximize your deduction.

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Remember, this calculator makes general assumptions about your ability to utilize tax deductions and your overall tax situation. Other factors such as Alternative Minimum Tax (AMT) or excess charitable donations could affect this calculation. This is not intended as tax advice and we remind you to consult a qualified tax professional about your specific situation before committing to a large charitable gift.

About Tillman Hartley: Tillman Hartley is an independent, partner-owned wealth management firm. We serve the unique financial and planning needs of successful individuals and multigenerational families as they grow and evolve through life’s transitions. The generosity of our client families has allowed us to amass extensive experience with charitable gifts and estate planning entities for the charitably inclined. If you currently have or are considering a private foundation, charitable remainder trust (CRT), or charitable lead annuity trust (CLT, CLAT) we would like to discuss how our management can add value. Similarly, consider contacting us before making a sizable or long-term charitable commitment or a gift with naming rights.


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