Instead of giving cash to charity you can donate stock or mutual fund shares that have increased in value and that you have held for more than one year — and save some money in the process.
You can deduct as a charitable contribution the full market price of the stock or fund shares on the date you make the contribution. You don’t have to report the increase in value as a capital gain on Schedule D.
Art pledged $5,000 to his church building fund. Art has 100 shares of Online Profits, Inc. worth $5,000, which he purchased in 1998 for $2,000. He gives the stock to the church to satisfy his pledge. Art can deduct $5,000 on his Schedule A. He doesn’t have to pay tax on the $3,000 gain.
If Art sold the stock and gave cash to the church he would have to report the sale of the stock on Schedule D and pay $450 in federal tax, and state income tax, on the gain.
Be sure any investment you donate is long-term property — held for more than one year. If you donate stock that you held for one year or less your deduction is limited to the cost basis, which in the above example would be $2,000.
Do not donate an investment that has gone down in value. It is better to sell the stock, claim the loss on Schedule D and donate the cash to charity.
New Jersey tax pro Robert D. Flach has been preparing 1040s for individuals since 1972.