The ramblings of an old church treasurer…
There is no free lunch, but gifting of appreciated assets, such as stock certificates, comes close. Briefly, this is how it works. If you are holding an asset that has significant appreciation over the years, you would incur capital gains tax upon the sale of the asset, however if you give the asset to the church, you do not owe any taxes on the gift. You are entitled to claim the current value as a tax deduction, the church can sell the asset and because we are tax exempt, no taxes are due.
A simple example: If you bought 100 shares of AT&T stock for $10.00 per share and it is now worth $28.00 per share, when you sell the stock today you would have a capital gains of (28-10) x 100= $1800.00, which would be taxable income, if we assume a 15% rate, you would owe taxes of $270.00. Of course if you live in Vermont and get a property owners rebate, this would also increase your property taxes by approximately $12.45.
Perhaps you are not feeling that generous but you plan to sell the shares. If you were to donate 10 shares to the church, and sell the remaining shares, the example would look like this: Sale of 90 shares 90x(28-10)=$1620 capital gains. The tax assuming the 15% rate would be 1620×0.15= $243.00. Your tax-deductible gift for the 10 shares would be 10×28=$280.00. Because the deduction is approximately the same as the tax, the church wins, the taxman looses, and you break even. So you could say there is a free lunch.
But you can have your cake and eat it to.
If you have appreciated assets, but you want to hold them for retirement, and you have a stash of cash that you want to donate to the church, consider the above example. Whenever you sell the stock you will owe taxes on the capital gains. If you were to donate the 100 shares to the church and repurchase the shares at today’s price, the numbers look like this:
You have a tax-deductible donation 100×28=$2800.00 with no capital gains tax owed. The 100 shares you purchased with the cash now has a tax basis of $28.00 per share. When you sell the shares in your retirement years, your capital gains are based on the $28.00 per share rather than the $10.00 per share that you originally held. Your brokerage costs should be more than offset by the tax deduction for the gift. Therefore, the church wins, you win, and the taxman looses.
“Give unto Caesar what is Caesar’s” (Matt 22:21), unless you can use a loophole to eat your free lunch and have it too.
Neil Snyder