When it comes to supporting charitable causes, making a gift is an impactful way to contribute. However, the methods of giving can vary, and choosing the right one for your circumstances is important. In this article, we will explore some of the different forms of charitable giving, their advantages, and their associated tax benefits.
Gifts of Cash: The Simplest and Fastest
Giving cash is the quickest and simplest way to make a charitable contribution. Outright gifts of cash are fully deductible in the year of the gift for those who itemize deductions, up to 50% of their adjusted gross income. Any unused deduction can be carried over for up to five additional years, providing flexibility for donors.
Gifts of Securities: An Added Advantage
Donating stocks and bonds that have appreciated in value and have been held for more than a year offers an additional advantage. When you sell securities, you’re generally subject to capital gains tax on the appreciated value. However, by donating these appreciated securities to a charity and allowing them to sell, you can avoid the capital gains tax. Such gifts are fully deductible in the year of the gift, up to 30% of your adjusted gross income. If securities have decreased in value, consider selling them first to claim a capital loss.
Gifts of Real Estate: Another Added Advantage
Similar to appreciated securities, donating real estate that has increased in value over a year brings added benefits. When you sell real estate, capital gains tax is typically applicable. Yet, you can avoid the capital gains tax by donating long-term appreciated real estate to a charity and letting them sell it. The deductible amount for real estate gifts is also up to 30% of your adjusted gross income. For gifts over $5,000., a professional appraisal is required to substantiate the value, and environmental concerns may necessitate an audit in some cases.
It's also possible to give a fractional interest in property, where proceeds from jointly sold property are shared between the donor and the charity. The donor is responsible for any capital gains taxes on their retained portion.
Gifts of Tangible Personal Property: Gifts that can be Touched and Moved
Tangible personal property, such as artwork, jewelry, and other collectibles, offers a unique way to support charities. However, there are specific Internal Revenue Service (IRS) rules governing charitable deductions for these items. The IRS mandates that donated tangible personal property must be used in a way “related” to the charitable organization’s mission to receive a full fair market value deduction. Otherwise, the deduction is limited to the asset’s cost basis.
For donors claiming a charitable deduction of more than $5,000 for tangible personal property, a qualified appraisal is necessary.
A Meaningful Impact
In conclusion, the path you choose for your charitable giving depends on your preferences and the assets you wish to donate. Each method offers its own advantages and tax benefits, allowing you to make a meaningful impact on the causes you care about. Whether it’s cash, securities, real estate, or tangible personal property, your gift can create a lasting positive change.
