When individuals consider selling or transferring ownership in an appreciated non-traditional asset, they face major tax consequences. However, by supporting their favorite charitable organizations, these givers can avoid federal capital gains tax on their appreciated assets. By gifting the asset instead of selling it, charitable purposes and tax reduction or avoidance can be accomplished.
Federal tax law provides tax advantages for charitable gifts depending on the type of asset given and the manner in which the gift is made. A charitable gift provides an income tax deduction for givers who itemize on their federal income tax return. The deduction is limited to 30% of AGI on gifts of appreciated assets. The assets that are the best to give are those that have increased the most in value and would result in the greatest capital gains tax if sold. Capital gains tax of 15% on any appreciated asset that is held for more than one year can be avoided by gifting the asset instead of selling it. Any gift also reduces the value of an estate, resulting in a reduction in federal estate taxes due when the estate is passed on to heirs.
A gift of a non-traditional asset that has appreciated in value, has been held for more than one year and is ready to be sold can provide more benefits than a cash gift. For example, property that meets these criteria is deductible for its full fair market value and there is no capital gains tax to pay.
For investments that have decreased in value since their acquisition date, consideration should be given to selling those assets and making a deductible gift of all or a portion of the cash proceeds. This transaction creates a loss that can be deducted from other taxable income along with any cash contributions. The amount of the deductible loss combined with the charitable deduction may actually amount to more than the current value of the gifted asset.