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A Smarter Donation: How to Support Your Favorite Charity and Ease Your Tax Liability

by Jim Ortlip, CFP ®


For wealth advisors, there’s a predictable time warp that happens in the last few months of the year. While everyone else is enjoying the heyday of fall, we’ve already zoomed ahead to December 31st.


We jump ahead to the end of the calendar year because there are important financial planning decisions that need to be made now in order for you to achieve maximum advantage.


One such decision is how to support your favorite charitable organization in advantageous fashion to your tax liability.


Often when we think about making charitable donations, we immediately assume we’re talking about cash. However, you have more options for making that donation than just cash, especially if you own highly appreciated capital gain property.


Imagine you bought a piece of property for $25,000 and it’s now worth $100,000. If you sold the property first, you would pay $15,000 in capital gains tax, leaving you with $85,000 to donate to the charity. Under IRS guidelines, you could then claim an $85,000 charitable deduction.  

But you can do better than this scenario, both for yourself and the charity. If you donate the property directly to your favorite charitable organization, you could claim the full $100,000 charitable deduction and the charity enjoys a higher-value contribution.


Directly donating highly appreciated capital assets is a savvy way to do better for your favorite cause and yourself.


It’s also important to note that when donating highly appreciated capital gain property, the IRS allows a little wiggle room. The IRS set the rule that when an individual donates cash to a charity, he or she can write off up to 60% of their adjusted gross income (AGI). However, contributions of appreciated capital assets are limited to 30% of AGI. If you’re not able to claim the entire deduction for your donation in the year intended, any unused write-off can be carried forward for five years.

On the flipside of capital gains, you also an opportunity around donations and capital losses. If you have some property in mind to donate to a charity that has a loss, you can sell it and take advantage of the capital loss on your taxes.


All told here, you have good options for how to support a worthy cause and ease your tax liability. But the time to make these smart moves is now. Schedule a consultation with your accountant to talk through your options and to be certain the property you have in mind to donate is suitable to enjoy the tax benefit desired. 


The information, analysis, and opinions expressed herein are for general and educational purposes only. Nothing contained in this commentary is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. All investments carry a certain risk, and there is no assurance that an investment will provide positive performance over any period of time. An investor may experience loss of principal. Investment decisions should always be made based on the investor’s specific financial needs and objectives, goals, time horizon, and risk tolerance. The asset classes and/or investment strategies described may not be suitable for all investors and investors should consult with an investment advisor to determine the appropriate investment strategy. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice.
Category: Wealth Management, Asset Management, Financial Planning