By George M. Hiller, JD, LLM, MBA, CFP
You can change lives for eternity and save extra tax dollars. How? You can make charitable gifts of certain stock or other property to GO TELL Ministries.
The tax law allows you to take a charitable deduction for the fair market value of gifts to certain charitable organizations such as GO TELL Ministries. GO TELL qualifies since it is classified as a Section 501(c)(3) tax-exempt charitable organization. Gifts of cash or property to GO TELL are tax deductible.
Suppose you want to make a gift of $10,000 to GO TELL. Assuming a combined federal and state income tax rate of 32 percent, your charitable gift of $10,000 saves you $3,200 in income taxes. Your gift may be in the form of a check or stock. Which way is better?
In many cases, you may be better off giving appreciated stock, real estate, or other property instead of cash. Why? In general, when you give appreciated stock to qualified charitable organizations such as GO TELL, you not only receive an income tax deduction but you also avoid recognition and taxation of capital gains on the property you gift.
For example, assume you bought stock in a company years ago for $1,000 and the stock is now worth $10,000. If you sold the stock, you would recognize $9,000 in capital gains on which you would have to pay income taxes estimated at $1,800 ($9,000 long-term capital gains x 20 percent federal and state combined tax rate). After taxes, you would net $8,200.
Assume instead you gift the stock directly to GO TELL Ministries. You recognize no capital gains and pay no taxes, and you receive a full deduction for the fair market value of the gift of $10,000. In this example, you save $3,200 in income taxes plus another $1,800 in capital gains taxes. The total tax savings on the gift of appreciated stock equals $5,000.
Appreciated real estate is another example of how you can gift appreciated property to GO TELL, receive a charitable deduction, and also avoid recognition of capital gains tax. For example, assume you owned real estate worth $100,000 that you bought years ago for $10,000. If you sold the real estate, you would recognize $90,000 in capital gains on which you would have to pay taxes estimated at $18,000. By gifting the real estate to GO TELL, you avoid the capital gains tax and receive a charitable deduction of $100,000, which is worth $32,000 in tax savings. In this example, the total tax savings on the gift of appreciated real estate equals $50,000.
One rule to keep in mind is the tax deduction for gifts of appreciated stock or real estate to charity is limited to 30 percent of adjusted gross income instead of the 50 percent of adjusted gross income limitation applicable to cash gifts. If you exceed the limits, you may carry over the excess for five years.
Another important rule to keep in mind is you must have owned the stock or real estate for at least twelve months to deduct the full fair market value of the gift to charity. There are other tax rules that may affect your particular facts, so it is often advisable to consult a tax expert.
Gifts to worthy ministries of appreciated stock, real estate, or other property reflect wise stewardship in charitable giving.
