4 ms·

Donating assets to charity is not a realization event under US tax law. This is why donor-advised funds are a thing - this rule applies to publicly traded secur

Donating assets to charity is not a realization event under US tax law. This is why donor-advised funds are a thing - this rule applies to publicly traded securities, which means you can donate appreciated stock to a DAF and have the fund distribute cash to charity on your behalf, avoiding the capital gains you would incur if you normally sold appreciated stock and donated the proceeds.

AnthonyMouse 5y ago
So I think I'm wrong. I'm doing the math for selling the asset and donating the money. In theory just donating the asset shouldn't make any difference -- either it's a realization and that cancels with the donation, or you're donating at the original tax basis, and either way the net deduction is the original tax basis. Because otherwise it's double counting and you get all kinds of bizarre incentives and rich people not paying any taxes. For example, if you bought $1 of a stock that appreciated to $1000 and they increased the capital gains rate to 60%, you wouldn't pay any taxes. The IRS would take in less money from the higher rate. Because even if you don't care about charity at all, you'd donate half the stock to a charity when you go to sell the other half and keep 50% of the money instead of 40%. The IRS would get nothing instead of whatever they got at the lower rate. But the tax code is full of bizarre incentives and rich people not paying any taxes, so apparently this is one of them. (Which at least has the benefit of encouraging charitable donations.)
- ThrustVectoring 5y ago
  Yeah I agree that it's weird, unintuitive, and not how the ideal tax code should work. It shouldn't matter whether you or the charity sells the stock. Similarly, it shouldn't matter whether you or your heirs sell your stock, but it does, and that's a whole other can of tax optimization worms. This is because the cost basis of assets "steps up" on the owner's death to the fair market value at that date - without any capital gains owed. So if you own $10m of non-dividend paying stock, you can comfortably borrow and spend $200k/yr against it, pay no income or capital gains taxes, and when you die your heirs don't owe any capital gains either and can sell off a portion to repay the loan.

AnthonyMouse 5y ago

So I think I'm wrong. I'm doing the math for selling the asset and donating the money. In theory just donating the asset shouldn't make any difference -- either it's a realization and that cancels with the donation, or you're donating at the original tax basis, and either way the net deduction is the original tax basis. Because otherwise it's double counting and you get all kinds of bizarre incentives and rich people not paying any taxes. For example, if you bought $1 of a stock that appreciated to $1000 and they increased the capital gains rate to 60%, you wouldn't pay any taxes. The IRS would take in less money from the higher rate. Because even if you don't care about charity at all, you'd donate half the stock to a charity when you go to sell the other half and keep 50% of the money instead of 40%. The IRS would get nothing instead of whatever they got at the lower rate. But the tax code is full of bizarre incentives and rich people not paying any taxes, so apparently this is one of them. (Which at least has the benefit of encouraging charitable donations.)

ThrustVectoring 5y ago
Yeah I agree that it's weird, unintuitive, and not how the ideal tax code should work. It shouldn't matter whether you or the charity sells the stock. Similarly, it shouldn't matter whether you or your heirs sell your stock, but it does, and that's a whole other can of tax optimization worms. This is because the cost basis of assets "steps up" on the owner's death to the fair market value at that date - without any capital gains owed. So if you own $10m of non-dividend paying stock, you can comfortably borrow and spend $200k/yr against it, pay no income or capital gains taxes, and when you die your heirs don't owe any capital gains either and can sell off a portion to repay the loan.