Friday April 26, 2024

2.3.1 Gift of Appreciated Property

Current Charitable Gifts

Gift of Land:  For donors who own appreciated real property, a gift can maximize tax savings. The selected parcel of land may be transferred by deed to a charity.

Gift of Stock:  The gift of stock is logistically quite easy to accomplish. Most shares of public stock are now held in street accounts.

Tax Benefits:   Normally, the gift of land or stock involves appreciated property. If the donor were to sell the entire property for cash, he or she would recognize the difference between fair market value and adjusted cost basis as a long-term capital gain.

Gift of Land


For donors who own appreciated real property, a gift can maximize tax savings. The selected parcel of land may be transferred by deed to a charity. Normally, the charity then sells the real property. The donor bypasses gain on the gift and uses the charitable income tax savings to offset other taxable income.

There are several important planning factors for a gift of appreciated real property. First, there may be no prearranged sale. Ferguson v. Commissioner The property must be transferred to the charity with no legally binding obligation in existence. While there may be prospective purchasers "waiting in the wings," there can be no signed or oral binding agreement to sell. If there is a binding agreement, the capital gain will not be avoided on the gift.

With all real estate, the charity should determine whether there is debt on the property, whether the donor has good title to the property and whether there are environmental considerations. In addition, if the property is depreciable real estate and there has been accelerated depreciation, a portion of the asset would potentially represent ordinary income. This would reduce the charitable deduction by the value of the ordinary portion. Sec. 170(e)(1).

Gift of Stock


The gift of stock is logistically quite easy to accomplish. Most shares of public stock are now held in street accounts. The desired number of shares may be transferred directly through a financial services firm to the qualified charity. If the actual shares are to be transferred, it will be necessary to obtain a stock power and have it signed at a financial services firm. The stock power and certificates are mailed by Registered Mail in separate envelopes to the charity. With the signed stock power and certificates, the charity may then sell the stock and receive the proceeds.

For publicly held shares that have appreciated, there will be a bypass of gain and an income tax deduction. The deduction is the mean between the high and low sales on the date of the gift. Reg. 20.2031-2(b)(1). For public securities held for over one year, the deduction will be a 30% type deduction at fair market value. If the securities are short-term, the deduction will be limited to cost basis. Sec. 170(e)(1).

Privately held shares of stock may also be transferred to charity. If the privately held stock is valued at greater than $10,000, a qualified appraisal is required. Reg. 1.170A-13(c). In addition, with gifts of privately held stock, the donor should recognize that there may be a discount for minority interest or lack of marketability. The appraiser should both value the stock and determine the discount, if any.

Tax Benefits


Normally, the gift of land or stock involves appreciated property. If the donor were to sell the entire property for cash, he or she would recognize the difference between fair market value and adjusted cost basis as a long-term capital gain. Of course, if the gift property is depreciable real estate and excess depreciation is recaptured as ordinary income, part of the sale proceeds would be subject to a higher tax rate. Sec. 1245. Sec. 1250.

The gift to the charity will produce an appreciated property type charitable deduction. Sec. 170(b)(1)(C). Fortunately, the gifted property both bypasses the capital gains tax and produces an income tax deduction. The tax savings from the income tax deduction may offset other ordinary income.

Related Topics on Gift of Appreciated Property

1.1.3  Deduction Limits - 60%, 50%, 30%, 20%:    There are several limits on deducting charitable gifts. Generally, cash gifts and appreciated gifts to public charities are deducted first. Then, cash and appreciated gifts to private foundations are deducted. If there are carry-forwards in either category, those are deducted next if the current gifts have not reached the applicable deduction limits.

2.2.1  Gift/Sale of Land:    For donors who own appreciated property, a combination gift and sale can maximize tax savings. A portion of the land is transferred by deed to a charity. Normally, the charity and the donor then jointly sell their respective portions of the property. The donor bypasses gain on the gift portion and uses the charitable income tax savings from the gift portion to offset, in part or in whole, the tax payable on the real property not donated.

2.2.2  Gift/Sale of Stock:    The gift/sale of stock is logistically quite easy to accomplish. Shares of stock are divisible. Most shares of public stock are now held in street accounts. The desired number of shares may be transferred directly through a financial services firm to the qualified charity.

      Quiz-Basic



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