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If I donate shares of stock to a charity, what kind of tax deduction can I take?
If you donate stocks to a charity, you can take a tax deduction. But how much can you deduct?
The amount of the deduction depends on how long you have held the stock, and how much it has grown, or declined, in value, over that period.
If You Have Held the Stock for Less than a Year
If you have held the stock for one year or less, the stock is ordinary income property so it is taxed at ordinary income rates. The amount you can deduct, then, depends on whether or not the stock has increased in value during the period you have owned it, or declined.
If the stock has increased in value during the time you have held it, you can deduct the basis of the stock. The basis is what you paid for the stock plus any commissions and fees that you paid to purchase that stock.
Example 1
Bob bought 100 shares of Beta.com on January 2 for $10 a share. At that time, he paid a $19.95 commission on the sale, making his entire purchase price $1019.95. He decides to donate the entire 100 shares to his church on March 15, which means that he has held the stock for less than one year. If the stock had increased in value, his charitable deduction would be $1019.95, regardless of the value at the time he donated it.
If the stock has declined in value, during the time you have held it, you can only deduct its fair market value on the day you make the donation. Fair market value is what a willing buyer would pay a willing seller, both having reasonable knowledge of the relevant facts and neither having to buy or sell.
Example 2
Bob's Beta.com stock, purchased as above, drops to $2.00 per share on the NASDAQ the day Bob gives it to his church. Bob can take a $200 charitable contribution (100 shares x $2 per share).
If You Have Held the Stock For More Than a Year
If the stock is considered long-term capital gains property (stock that has been held for more than one year), the charitable contribution is the fair market value on the date of the donation as long as your contribution deduction does not exceed 30% of your adjusted gross income.
Example
Bob owned Beta.com stock for more than a year and watched it soar to $20 per share on the NASDAQ the day he donated the stock to his church. His charitable contribution is $2000 (100 shares x $20 per share).
Tax Planning Tips
If you have investment property that has decreased in value, sell the property and donate the proceeds. You can take (subject to some restrictions) a capital loss for the sale and have a charitable contribution for the donation.
In calculating the tax basis for a capital loss, remember to include the commissions you paid when you bought the stock as part of the cost, and if you sell the stock, subtract the commission from your profit. For more on the way that investment expenses adjust your basis in the stock, see Using Investment Expenses to Save Taxes.
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