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By Rick Fingerman, CFP

As you know, you can always give to a charity or a person. This gift is usually in the form of one writing a check or (using a credit card if giving to a charity).

However, there is also another way to give — one that works for both gifts to individuals and charities.

Rick Fingerman is a founding and managing partner at Financial Planning Solutions, LLC.  He has been helping individuals and families make sound financial decisions for over 30 years.

Rick Fingerman

Gifting Appreciated Assets

What exactly is an appreciated asset? It’s basically something you paid less for that is worth more now. You may ask, "Why would I want to gift an appreciated asset?" The answer: taxes.

Let’s say you bought 1,000 shares of stock way back for $50 a share and it’s now worth $150 a share. Your $50,000 investment is now worth $150,000.

Let’s say you want to give your three kids a gift of $50,000 each. You could sell the stock and then give the kids the cash.

However, there’s a problem. Because you have a capital gain (your investment went from $50,000 to $150,000) you would be subject to capital gains tax. If you are in the highest tax bracket, that could mean a capital gains tax rate of 20% or about $20,000.

Yet, there’s an alternative. You can simply gift $50,000 worth of shares to each kid. No tax for you to pay, but, if the kids sell the stock, they would be subject to the capital gains taxed at their rate. This is a smart move if they are in a lower tax bracket than you.

Bear in mind, gifts to individuals over $16,000 per calendar year require filling out an IRS Form 709. Couples can donate more, too — a married couple could each give a person $16,000 for a total of $32,000 per year. There is no tax to pay on these gifts today. The IRS Form 709 is a way to keep track of gifts in excess of the $16,000 limit. However, at one’s death, these excess gifts are added back in and there may be estate taxes.

Gifting appreciated assets to a charity work the same way, but there isn’t a limit on what you can gift. You can receive a tax deduction, and there is no IRS 709 form to fill out. The charity can sell the appreciated asset and pays no tax as well.

Always seek proper financial and tax advice before making any decisions pertaining to making gifts or other major financial decisions.

About the author: Rick Fingerman, CFP®

Rick is a founding and managing partner at Financial Planning Solutions, LLC. He has been helping individuals and families make sound financial decisions for over 30 years.


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