Highly-appreciated stock can mean a big capital gains tax bill for the owner.
But advisors with philanthropic clients can
The strategy can also create charitable deductions, but with the increased standard deduction, fewer taxpayers find it advantageous to itemize on their tax returns than in the past.
Other types of in-kind charitable donations can also allow clients to take tax deductions, though these don't provide the added benefit associated with donating stock.
One challenge to keep in mind is the appraisal process, according to an advisor who has worked on in-kind charitable donations.
"If you're going to give a car or a boat or
Instead of realizing capital gains to sell stock and donate cash, clients would donate the appreciated assets and get deductions based on values of the marketable securities when charities receive them, he said. Clients can do this directly or
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In-kind donations might not always be useful to charities. Benjamin Sunshine, Fort Lauderdale, Florida-based senior associate in Brinkley Morgan's wills, trusts and estates practice, said he spoke with the president of a temple who received a billboard as a gift.
"What is a temple going to do with a billboard? Well, the temple ended up leasing the billboard to companies to advertise, so the temple got revenue off of that," he said. "It's easy if they get stock: They sell the stock, and they get the money. But it gets a little bit more complicated when we're not dealing with assets that are straightforward."
Although Sunshine said he hasn't seen boats or airplanes, those asset types are likely to be highly-appreciated, too. Clients should consult their financial advisors and lawyers.
"If you are giving gifts that are not stock," he said, "it's important to get a qualified appraisal as part of the gift because, if you don't, then you'll lose your deduction. So there's a lot of traps.
"The IRS has said you still need a qualified appraisal if you're gifting cryptocurrency, even though it's very easy to get a qualified appraisal for cryptocurrency because it is traded," Sunshine added.
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Rules vary depending on whether the charity will sell or use the asset.
"In a hypothetical where someone has a car, and it's worth pennies, a charity still may want it because maybe the charity can benefit from selling that car immediately and getting the cash out of it that they're able to," said Colleen Spain, Uniondale, New York-based counsel in the tax, not-for-profit and corporate practice areas at Farrell Fritz. "That donor's charitable deduction is going to be limited to that immediate sale price — the gross proceeds from that sale — versus a situation where a charitable donation of a car is made, and an organization plans to make what the IRS calls a 'significant intervening use' of that vehicle," if the charity uses it for its tax-exempt purposes, such as a work van for a soup kitchen to deliver food.
"Organizations are better able to use and accept appreciated stock (albeit, there is work to be done to sell, etc.)," she added.
