Depreciated Securities - An unusual gift idea that may be just right this year

Before talking about gifts of depreciated securities it’s important to understand why gifts of appreciated securities are so popular. So, we begin with that.

Gifts of highly appreciated assets held long enough to qualify for long-term capital gains treatment if sold by the donor top the list of philanthropic win-win situations. Here's why: The donor receives a charitable tax deduction at the fair market value of the securities and completely avoids paying capital gains tax on the appreciation that accumulated over the years – and, the charitable beneficiary - your alma mater, for example - receives a gift likely much larger than would have been the case if the donor had made the gift using other assets.

If you have highly appreciated securities that you’ve held for more than one year, then these assets may be a terrific way to make a special charitable gift this year. If you’re interested in learning more about the considerable tax advantages and how this gift must be made, COMMENT here and we'll go into more detail in reply.

But, that said – the focus here is on the opposite situation, a topic much less often discussed. Why? Simply, there usually are better ways to make a charitable gift than to use depreciated securities. But, this is not a usual year – and, this just may be the right year to consider a gift idea that could be an ideal fit for today’s economic conditions.

If you own securities that have lost value, turning these securities into a charitable gift may be best thing you can do with them. Unlike appreciated securities – which you would give directly to the charitable organization to achieve maximum tax advantages, a gift of depreciated securities requires you to first sell the stock and then make the gift using the proceeds from the sale. This two-step sequence preserves your opportunity to take the capital loss tax deduction on the sale of the depreciated securities and creates your opportunity for a charitable gift tax deduction.

This year especially, it just may be that stocks you own which are substantially below your original cost could offer a creative way to fund the charitable gift you wish to make. Such a gift can be both generous and tax-wise.

LAW SIGNED BY PRESIDENT BUSH ALLOWS TAX-FREE CHARITABLE GIFT TRANSFERS FROM IRAs IN 2008.

President Bush has signed into law legislation that allows individuals 70½ and older who have Individual Retirement Accounts (IRAs) to make direct and tax-free transfers from their IRAs to their alma mater (and other public charities). This opportunity was possible for the past two years, but it expired last December. Now, donors will be able to do so again this year. The key thing is that the charitable gift transfer must be completed by December 31, 2008.

We know from last year’s experience that many Americans who are 70½ and older will see this new law as a creative way to support their alma mater (and other public charities). The IRA-funded gifts can be for any amount up to $100,000. This means a donor may give not only the amount that must be withdrawn this year to meet mandatory distribution requirements but also can draw down part of the IRA's principal – which has the added advantage of reducing the tax bill due on next year's withdrawal.

These IRA gifts are relatively easy to do, but they take a little time to process. Those interested in taking advantage of this special opportunity are encouraged to act soon, to be sure they meet the December 31 deadline. My office is available to answer any questions donors may have about what they need to do to make a ‘qualified charitable distribution,’ as these IRA gifts are called by the U.S. IRS.”

For more information on making a 'qualified charitable distribution' this fall from an Individual Retirement Account (IRA), I can be reached at either 540.568.3196 or (toll-free) 800.296.6162. By e-mail, please use sudoltj@jmu.edu.

And, to read more about making gifts from your IRA (and other such ideas), you are invited to visit the web at www.jmu.edu/development/plannedgiving.