Understanding Appreciated Securities

October 1, 2018 by Richard Letocha, Esq., CFP

Tax-wise giving with impact

Considering a year-end gift to Johns Hopkins? A gift of appreciated securities offers an appealing mix of tax benefits and direct support for the program that is meaningful to you.

Securities are shares of common stock in companies, or units of mutual funds. Appreciated securities are those securities that are worth more today than when they were acquired. Capital gains are the difference between a security’s current value and the security’s cost basis, the value it had when it was acquired. When an individual sells appreciated securities that have been held for at least one year, federal taxes of 15 percent or 20 percent are paid on the capital gains. Many states also impose their own capital gains taxes.

Richard Letocha is a gift planning advisor in the Johns Hopkins Office of Gift Planning.
Richard Letocha is a gift planning advisor in the Johns Hopkins Office of Gift Planning.

Gifts of appreciated securities to Johns Hopkins offer two compelling tax benefits: First, a donor may claim a charitable income tax deduction for the full value of the gift on the date the gift is completed. Second, by giving the appreciated securities directly to Johns Hopkins, a donor avoids paying the capital gains taxes that would result if the donor were to sell the securities. Consider this giving example:

Frank is a Hopkins donor who owns 1,000 shares of a publicly traded stock that is currently trading at $50 per share, and which he purchased for $10 per share some years ago. If Frank were to sell this stock and give the proceeds to Hopkins, at his current tax rate, he would pay $6,000 in capital gains taxes on his $40,000 profit, and would be able to make an income tax deductible gift of $44,000. But, if Frank were to transfer the 1,000 shares directly to Hopkins, a tax-exempt charitable organization, he would pay no capital gains tax and could deduct the full $50,000 value of the gift. Moreover, the program that Frank wants to support would receive the full $50,000 value of the gift, rather than $44,000.

Appreciated securities are also a great way to fund a gift, such as a charitable gift annuity or charitable remainder unitrust that will support Johns Hopkins’ future needs and pay you and/or a loved one income for life. The tax benefits of these gifts differ from those for outright gifts. Whether funding a life income gift or an outright gift, consult with your tax advisor regarding the availability of a charitable income tax deduction.

Tips and Timelines for Giving Appreciated Securities

Topics: Alumni, Faculty and Staff, Friends of Johns Hopkins Medicine, Parents