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One significant change that came from the Tax Cuts and Jobs Act (TCJA) enacted at the end of 2017 is a higher standard deduction amount that is now available for individual taxpayers. As a result of this change, certain individuals may no longer be in a position to receive a tax benefit for charitable giving. Previous Bottomline articles have explored strategies to preserve and maximize the tax benefits of charitable giving by “bunching” and using donor-advised funds. An additional strategy that can be used in conjunction with these others is donating appreciated stock.
With the stock market at an all-time high, taxpayers may be looking to take some chips off the table. The downside of doing so is that selling appreciated stock will generate a tax liability on the capital gains realized. As an alternative, however, an individual can choose to donate the appreciated stock (if it is held for longer than a year) instead of selling it. By gifting appreciated stock rather than cashing out and donating the remainder, the taxpayer not only avoids paying tax on the gain but also receives the benefit of the full market value as an itemized deduction (subject to certain limitations based on percentages of AGI). In certain circumstances, this same concept can be applied to donating other appreciated assets such as artwork, collectibles, or antiques.
In order to claim a charitable deduction of appreciated stock, the donation must be made to a qualified 501(c)(3) nonprofit organization. Further, there are specific documentation requirements that must be met. Consult your GBQ tax advisor to learn more about how to maximize your deductions by using one, or all, of these strategies.