Dear Carrie: Is it better to gift stock or cash to a charity or university? -- A Reader
Dear Reader: Especially in tough economic times, like these when people in general have less to give, charities and universities welcome any type of donation -- cash or stock. And from a tax perspective, the giver gets a tax deduction for the gift either way. However, your question raises an interesting issue. A donation of stock could very well be the best choice for both you and the cause you want to support. It all depends on whether the stock you're considering donating has appreciated or depreciated and how long you've held it. Let's look at the different possibilities.
THE CASE FOR CASH
Cash can be the simplest. You write a check; it's done. If the recipient is a qualified nonprofit or educational institution, you can probably get a tax deduction for the full value of your gift, up to 50 percent of your adjusted gross income. (If you're really generous, any amount over the adjusted gross income limit can be carried forward for five years.) You just need to get a receipt for your donation and itemize your deductions on your tax return.
WHY APPRECIATED STOCK CAN BE A BETTER ALTERNATIVE
Although a cash donation is always well received, giving a gift of appreciated stock that you've held for a year or more is even better, not only for your tax situation, but for the charity's bottom line as well. Here's why.
Let's say that several years ago you bought 100 shares of a stock at $10 a share, and it's currently worth $50 a share. Now you want to make a gift to your alma mater. If you sell the stock first, you'll have a long-term capital gain of $4,000. Assuming you're in the 15 percent federal long-term capital gains tax bracket, that takes a $600 bite out of your donation (not including state income taxes, if applicable). This lowers the value of your gift (and your tax deduction) to $4,400. You and your alma mater both lose out.
However, if you were to give the appreciated stock directly to the university, the university would get the total $5,000 market value of the stock, and you can claim the total amount as a charitable contribution on your taxes. Plus, if your alma mater hangs on to the stock and it goes up in value, so much the better for the school.
WHEN STOCK HAS DEPRECIATED