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.