Donating appreciated stock (that you have held for more than a year) from your investment portfolio instead of cash is a great way to make a charitable gift to your donor-advised fund or the Communities of Coastal Georgia's operating endowment at year-end.
This tax planning tool is derived from the general rule that the deduction for a donation of property to charity is equal to the fair market value of the donated property. Where the donated property is “gain” property, the donor does not have to recognize the gain on the donated property. These rules allow for the “doubling up,” so to speak, of tax benefits: a charitable deduction, plus avoiding tax on the appreciation in value of the donated property.
Example: Tim and Tina are twins. Each plans to donate $10,000 to their college. Each also owns $10,000 worth of stock in ABC, Inc. which he or she bought for just $2,000 several years ago.
Tim sells his stock and donates the $10,000 cash. He gets a $10,000 charitable deduction, but must report his $8,000 capital gain on the stock, and he pays tax on the $8,000 gain.
Tina donates the stock directly to the school. She gets the same $10,000 charitable deduction and avoids any tax on the capital gain. The school is just as happy to receive the stock, which it can immediately sell for its $10,000 value in any case.