Gifts of securities such as stocks and mutual funds are a popular choice because of the dual tax benefit they provide. In addition to the income tax benefit that you may be familiar with for gifts of cash, gifts of securities also provide a capital gains tax benefit.

Your gift of securities could be outright, and therefore have an immediate impact at Bentley. Or, your securities gift can be used to create a gift plan that produces payments back to you and/or to others. That type of gift plan would have a future impact at Bentley. For more information about life income gift options, click here.

A gift of publicly-traded securities could be right for you if:

  • You have publicly-traded securities that you have owned for at least a year.
  • These securities have increased in value since you acquired them.
  • These securities provide you with little or no income.

How it works
You transfer shares of stock or mutual funds to Bentley to be used by the university right away or to create a gift plan that first provides income to you and/or others, and then provides support for Bentley in the future.

In either case, you would be eligible to take an income tax charitable deduction in the year you make your gift, and you would either reduce or eliminate capital gains tax that would otherwise be due had you sold the asset.

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What are publicly-traded securities?
Publicly-traded securities are stocks, bonds, and other investment vehicles whose values are readily available from an established securities market. For example, stocks listed on the New York or NASDAQ stock exchanges are publicly-traded securities. Such gifts are valued by averaging the high and low trade price on the date of the gift.

Are mutual fund shares publicly-traded securities?
While technically they are not exchange-traded like stocks, mutual funds are sold publicly by individual mutual fund companies. Gifts of mutual fund shares have the same tax benefits as gifts of publicly-traded securities. They are valued based on the Net Asset Value established for that fund on the date of the gift.

Two tax benefits for outright gifts of publicly-traded securities
You can save income tax and capital gains tax when you make an outright gift of appreciated securities that you have owned long-term (a year and a day or longer).

Income tax benefit
If you make an outright gift of appreciated securities held long-term, and you itemize deductions on your income tax return, you would be eligible for an income tax charitable deduction for the full fair market value of your shares on the date of your gift, regardless of what you paid for them. You may take charitable deductions for gifts of securities up to 30% of your adjusted gross income. If you are not able to use your entire charitable deduction in the year of your gift, you may carry forward the unused portion of your deduction for up to five additional years.

Capital gains tax benefit
If you make an outright gift of appreciated securities held long-term, you would not have to report any of your capital gain in the securities, thereby eliminating any capital gains tax that would otherwise be due. If you were to sell these securities yourself, you would owe capital gains tax on the difference between the sale price and the amount you paid for them.

To make an outright gift, should I give my securities directly to Bentley, or sell them first and then give the proceeds to Bentley?
Generally, if your securities have appreciated in value and you have held them long-term, you should give your securities directly to Bentley. This way, you will avoid paying tax on any capital gain you have in your securities.

If you sell your securities first and then give us the proceeds, you will owe capital gains tax on all of your capital gain – an unnecessary and potentially substantial cost to you, and reducing the amount of your gift impact at Bentley. (However, in certain circumstances, the tax benefits of an outright gift of cash may outweigh the capital gains savings.)

What is the advantage of making an outright gift of appreciated stock instead of cash?
When you make a charitable gift of cash, you get an income tax charitable deduction only. When you make a charitable gift of the same value with appreciated stock, you get the same income tax charitable deduction and you eliminate capital gains tax on all of your capital gain. The more highly appreciated your security, the more capital gains tax you will avoid.

The chart below shows how making a gift with appreciated stock can save substantially more taxes than making the same size gift with cash.  

Cash Gift vs. Stock Gift

 

Cash Gift

Stock Gift

a.   Gift Value

$10,000 

$10,000 

b.   Income tax deduction

$10,000 

$10,000 

c.   Income tax saved (at 37% rate)*

$3,700 

$3,700 

 

d.   Purchase price

   -

$1,000 

e.   Increase in value (a - d)

   -

$9,000 

f.    Tax avoided on gain (at 20% rate)

   - 

$1,800 

 

g.   Total tax savings (c + f)*

$3,700 

$5,500 

*assumes donor itemized deductions

Should I make a gift of securities that are worth less than I paid for them?
Generally, no. If you want to make a gift of securities that have depreciated in value, you could sell them and donate the proceeds of your sale to Bentley. By doing this, you would be eligible to take (1) an income tax charitable deduction for the amount of your gift to Bentley and (2) a capital loss. You can use the capital loss to offset capital gains tax on other assets you have sold. Even if you cannot take a deduction for loss securities in the year you sell them, there is a five-year carry forward. 

What happens if I give appreciated securities that I acquired less than one year ago?
If you give appreciated securities that you have owned short-term (for a year or less), your charitable deduction is determined differently than it would be if you had held the asset long-term (for a year and a day or longer). Remember, the charitable deduction for an appreciated asset held long-term is equal to its fair market value on the date of the gift. However, the charitable deduction for an appreciated asset held short-term is the lesser of what you paid for it (your basis) or its fair market value on the date of gift.

For example, if you purchased stock for $1,000 and gifted it nine months later when it was worth $10,000, your charitable deduction would be $1,000, because you had held it short-term at the time of your gift. However, if you gave the same stock 14 months after you purchased it – say it held steady and was still worth $10,000 at that time  – your charitable deduction would be $10,000, because you had held it long-term at the time of your gift.

When you give securities or other types of property that you have owned short-term, your income tax charitable deduction is limited to 60% of your adjusted gross income, not 30%, which applies to long-term holdings.

Is it easy to make a gift of publicly-traded securities?
Yes. Whether you plan to give one share or one thousand shares, it is easy to give your publicly-traded securities to us. Feel free to contact us for guidance.

Give securities and receive two tax benefits plus income for life
In addition to giving securities outright, another option for giving securities is through a gift plan that creates income. For more information about life income gift options, click here.   

Example

Max would like to make a $10,000 gift to Bentley. While he could write a check for this amount, he will be able to save even more in taxes by giving stock worth $10,000 instead. After reviewing his plans with his investment advisor, he decides to give shares of Poptropica Corporation worth $10,000. He paid just $​1,000 for these shares when he bought them 20 years ago.

Benefits

  • Max will earn an immediate income tax charitable deduction of $10,000, which will save him $3,700 (assuming he is in the 37% tax bracket), provided he itemizes.
  • Max may deduct up to 30% of his adjusted gross income in the year of his gift, with a five year carry-forward period.
  • He will avoid tax on $9,000 of capital gain, which will save him an additional $1,800 (20% tax).
  • He total tax savings is $5,500 ($3,700 + $1,800).