2.2 Stocks, Bonds, Buildings, and Other Investments

Let’s say you have a stock bond investment property or other investments that you’ve held for many years, you invested $10,000 and now its value is $50,000. Your capital gains tax on the $40,000 would be $6,000. Assuming a 15% capital gains tax rate. What if I said that you might qualify for a $50,000 itemized deduction and not have to pay that capital gains tax by donating your investment to your favorite organization. donating investments may provide much bigger tax benefits to you than giving cash. Let’s look at three types of investments. capital gain property held more than one year. capital gain property is property that you would owe long term capital gains tax on if you sold it. Examples include stocks, bonds or mutual funds that you have held for more than one year. The general rule for these is that the deduction amount is the fair market value of the item when you donate it. ordinary income property. ordinary income property is property that you would have owed ordinary income taxes or short term capital gains on if you sold it. Examples include stocks, bonds or mutual funds that you had held for one year or less. The general rule for these is that the deduction amount is the fair market value of the item minus the amount that is ordinary income or short term capital gains. In other words, it’s usually your basis or cost of the item. When you donate an investment property or a building used in a business. Your deduction may be a mix of capital gain property and ordinary income property. Your tax advisor can determine how much of a deduction you will receive for these buildings, property that’s decreased in value. Let’s say your $10,000 stock investment has dropped to $5,000. Instead of rising, you can only deduct the fair market value of $5,000. If you donate that stock. donating stock means you don’t pay capital gains, but it also means you can’t take capital losses. If you have investments that have lost value, you’re probably better selling them to get the tax benefits of a loss rather than doing donating them. This is something you need to check with your tax advisor about. donating investments that have risen in value can provide many tax benefits. Unfortunately, many smaller organizations struggle to process a donation of investments. A Donor Advised fund as a way to simplify donations of investments. I’ll be explaining Donor Advised funds in a later lecture.