Jaars Center

Giving Appreciated Securities

Why does giving securities often make more sense than giving cash?

If you own securities, such as stocks, bonds, or mutual fund shares, it could be to your advantage to give the securities instead of cash to JAARS. This is only true for appreciated securities—those which have gone up in value since your purchase—and which you have held for at least 12 months since purchase.

The best way to explain this is by example. Assume you own stock with a current value of $10,000, you have held the stock for at least 12 months, and your purchase price for the stock was only $3,000.

If you give that stock to JAARS, you will receive a charitable deduction for the full $10,000 … if you itemize deductions. If you happen to be in the 35% income tax bracket, that will give you a tax savings of $3,500.

In addition, you avoid paying the capital gains tax you would have owed had you sold the stock instead of giving it. Capital gains tax is applied to the increase in value from the time you acquired until the time you sell. In our example, capital gains would be $7,000 ($10,000 minus $3,000). Therefore, if you are in the 20% capital gains tax bracket, you avoid additional taxes of $1,400 (20% of $7,000).

If you sell the stock, you will receive only $8,600 after paying capital gains tax. By giving the stock to JAARS, you avoid $1,400 of capital gains tax and you receive a tax deduction of $3,500. But JAARS gets the full value of the $10,000 gift to use in our ministry.

Here’s a quick comparison of those two scenarios:

A: Give appreciated stock
B: Sell appreciated stock and
give the proceeds to JAARS
Market value of stock $10,000 $10,000
Initial cost basis of stock $3,000 $3,000
Income tax bracket 35% 35%
Capital gains tax rate 20% 20%
Income tax savings $3,500 $0
Capital gains tax $0 $1,400
Capital gains tax savings $1,400 $0
VALUE of gift to JAARS $10,000 $8,600
Personal cost $5,100 ($10k less tax savings) $11,400 ($10k plus tax)

By giving appreciated stock, a) you give less, and b) JAARS receives more!

Your situation will be different, of course, but as long as the value of the security when given is greater than its value when purchased, and you have held it for at least a year, the cost of the gift to you will be less than its value to JAARS. 

Again, always check with your tax adviser before transferring securities.