Capital gains: charitable giving
Charitable giving in the year of a large gain
Giving is one of the oldest ways to reduce the tax on a large gain, and it does real good at the same time. Our partners carry out the gift on your behalf, in the right form and at the right time, so the deduction is there when you file. A gift of the appreciated asset itself, made before the sale is fixed, is treated very differently from a gift of the cash afterwards.
The general rules
What the Code says about gifts of appreciated property
| Rule | Source | Effect |
|---|---|---|
| Deduction at fair market value | IRC 170(e) | A gift of long-term appreciated property to a public charity is generally deductible at its fair market value, and the built-in gain is not taxed to you. |
| Income limit | IRC 170(b)(1)(C) | For gifts of capital gain property to public charities, the deduction is generally limited to 30 percent of your adjusted gross income for the year. |
| Carryforward | IRC 170(d)(1) | A deduction you cannot use because of the income limit carries forward for up to five years. |
| Appraisal | IRC 170(f)(11) | Most non-cash gifts over 5,000 dollars need a qualified appraisal, and the return has to report the gift on Form 8283. |
These are the general rules for a direct gift to a public charity. Gifts to other kinds of recipient, gifts of short-term property and gifts that return income to you follow different limits.
Timing
The gift has to come before the sale is fixed
The benefit of giving appreciated property depends on the gain never becoming yours. If a buyer is already bound when the gift is made, the IRS can treat the sale as yours and the charity as having received the proceeds, which puts the gain back on your return.
- Transfer before a purchase agreement is binding, not after.
- Allow time for a qualified appraisal on most non-cash gifts.
- Size the gift against the income limit for the year, and plan the carryforward.
Where we fit
Partners who carry out the gift for you
Several structures do this, and they are not interchangeable: some return income to you for years, some let you decide on grants later, and some suit particular kinds of asset better than others. We hear out what you want your giving to do and how large the gain is, then connect you with a partner firm that handles the gift on your behalf, from paperwork and appraisal to the transfer itself, alongside your CPA.
Questions
Charitable giving questions
Why give property instead of selling it and giving the cash?
If you sell first, you recognise the gain and pay tax on it, then deduct the cash gift. If you give the appreciated property itself to a public charity, the gain is generally never taxed to you and the deduction is generally the full fair market value. The second route usually leaves more for the charity, less for the tax, or both.
Can I give the property after I have agreed to sell it?
That is where gifts most often go wrong. If the sale is already effectively fixed when the gift is made, the IRS can treat the gain as yours under the assignment of income doctrine. The gift needs to come before the sale is binding.
Which structure should I use?
It depends on whether you want income back, how much control you want over the eventual grants, and how the asset itself can be transferred. The options are treated very differently, so we go through them in conversation rather than recommend one on a web page.