Donate Stocks or Securities

Giving appreciated stock/securities you’ve held for more than a year is better than giving cash. If you donate tradable financial assets that have increased in value since you bought it more than a year ago – and if you itemize deductions — you can take a charitable deduction for the asset’s fair market value on the day you give it away. You’ll also avoid capital-gains taxes on the increase in value over time, which you would have had to pay if you sold the stock or security then gave the charity the cash proceeds. You can deduct the fair market value only if you hold the stock or security for more than a year before giving it away. If you’ve held it for less than a year, your deduction is limited to your cost basis — what you paid for the stock or security — not the current value.

If it’s a losing stock/security, it’s better to sell it and give the cash. If it has lost value, it’s better to sell the stock/security first and give the cash to the charity. You’ll still be able to deduct your charitable donation if you itemize, but you’ll also be able to take a capital loss when you sell the investment.

Ask the charity and brokerage firm about the procedure and time-frame for giving stock/securities. Most banks and brokerage firms require a letter of instruction or letter of authorization to transfer the shares to charity, and a mutual fund company may have a special form. It’s a good idea to start the process at least a week before December 31, so the transfer has plenty of time to be completed during the holidays. Jane Wilton, general counsel for the New York Community Trust, recommends transferring mutual fund shares a few weeks earlier. “Some mutual fund companies are faster than others,” she says.

You can buy extra time with a donor-advised fund. If you’d like to transfer shares when the value reaches a certain level but want extra time to decide which charity to support, you could give the stock or security to a donor-advised fund. You usually need $5,000 to $10,000 to open a donor-advised fund at a brokerage firm, mutual fund company or community foundation. You can take a charitable deduction when you give the shares to the donor-advised fund, but you have unlimited time to decide which charities to support. The donor-advised fund may also accept privately held stock, real estate and other complex investments.