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Money Management (Distributed by the New Jersey Society of Certified Public Accountants)

The Benefits Of Donating Stock And Other Assets

Donations to your favorite cause don't always have to be in cash. If you want to make a charitable gift before the end of the year, consider appreciated property. The New Jersey Society of Certified Public Accountants (NJSCPA) says that whether you donate stock, mutual funds, artwork, or real estate, you may qualify for a tax break while your charity of choice reaps the full value of your donation.

Donating Stock And Mutual Funds
When you donate stock or mutual fund shares you have held for more than one year, you may deduct the full current market value of the investment on your tax return and avoid paying capital gains tax on the appreciated value.

As an example, let's suppose your portfolio holds shares of stock you bought five years ago for $2,000 that are now worth $10,000. If you donate the securities instead of selling them, you get a deduction for the stock's current market value, plus you avoid paying the 20 percent long-term capital gains on the $8,000 your initial investment has gained. And, the charity receives the full $10,000 value of your donation.

To qualify for this special tax benefit, you must have held the shares for more than one year. If the shares have been held for one year or less, your charitable deduction is limited to the price you originally paid. Also keep in mind that your charitable deduction of appreciated property is limited to 30 percent of your adjusted gross income.

Here's an added advantage to donating stock or mutual fund shares. If your portfolio incurred losses, you typically would write them off against your gains, minimizing any capital gains tax. But if you give away your gains, you can still use your losses (up to $3,000 a year) to reduce your regular income. For most people, this produces a greater benefit since income tax rates are higher than the capital gains tax rate.

Donating Artwork And Other Appreciated Property
You may donate artwork and other collectibles as well, but the rules are more complicated. To deduct the appreciated value of your gift, the art must be put to a use related to the organization's main activity or charitable purpose. For example, if you donate to your local art museum a Monet painting that has been in your collection for many years, the art piece must be used for study and appreciation within the museum for you to deduct the full market value. If, however, the museum sold the painting to raise funds for a new wing, your deduction would be limited to the painting's original cost. It's a good idea to ask the charity to provide a statement outlining its intended use of your gift.

While there can be no argument about the value of publicly traded stocks and mutual funds, substantiating the value of artwork is likely to be more subjective. For that reason, the IRS requires a professional appraisal for an item or group of similar items worth more than $5,000. You must complete Form 8283, Noncash Charitable Contributions, Part 1, Section B, and attach it to your tax return. If your total deduction for donated artwork exceeds $20,000, you will need to attach a complete copy of a signed appraisal to your tax return along with Form 8283. The appraiser must complete Part 3 of Form 8283, and the organization that receives the property must complete Part 4 of the same form.

It's important to know that the appraisal must have been completed not more than 60 days before you donate the property. The cost of an appraisal is deductible, but only as a miscellaneous itemized deduction, not as a charitable contribution.

Deducting Donations Of Real Estate
Real estate donations fall under the same general rules of other property. Typically, if you donate mortgaged property and the mortgage is assumed by the charity, your deduction is lowered by the amount of the mortgage. For instance, if you donate to a charity your ski chalet appraised for $150,000 that has a mortgage of $100,000, your charitable deduction would be $50,000, the current market value of the property less the mortgage. In some cases, donated mortgaged property may result in a taxable gain.

Donating Appreciated Property Is Not Limited To The Wealthy
While many people think that donating appreciated property is just for wealthy people making large contributions, CPAs typically agree that the concept can work equally well for modest donations. If you would like advice about this charitable giving opportunity, consult with a CPA. If you don't have a CPA, you can easily locate one online using the NJSCPA Find-A-CPA service. Just go to www.findacpa.org and in a few clicks, you can locate a highly qualified professional who is right for you.

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Money Management is a weekly column on personal finance distributed by the NJSCPA.

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