The charitable opportunity with highly appreciated stock

Does your portfolio include long-term highly appreciated stock? It just may be the best asset to donate.

investor checking investment portfolio

When it comes time to support your favorite causes, you may instinctively reach for your checkbook or cash. Instead, consider the stocks in your portfolio that have generated substantial gains over the past few years. With a donor-advised fund sponsored by a public charity, you can easily donate these non-cash assets and enjoy tax savings as a result.

How does it work?

If you were to sell your long-term appreciated stock and donate the net cash, you become subject to capital gains tax. Instead, if you donate the stock directly to a public charity with a donor-advised fund program, you minimize the capital gains tax and also become eligible for an immediate income tax deduction. Now, you’ve maximized your charitable gift and 100% of the stock value can support the charity of your choice.1 By contributing the stock to a public charity with a donor-advised fund, you have the flexibility to determine how your gift can make an impact, and your contribution grows tax-free in the meantime.

Consider this hypothetical example2

Say you hold stock in Twitter (TWTR), one of the most highly appreciated securities over the past few years. When you purchased shares of the stock in August 2017, shares were priced around $20 each. Since then, the stock price has risen dramatically and appreciated more than 150%. If you are looking at the stock in August 2019, you see the price per share is now more than $40.

Original cost of securities3: $20,000
Securities now valued at4: $50,000
Federal long-term capital gains rate5: 23.8%

Sell the stock and
donate after-tax
proceeds:
Donate the stock
directly to
Fidelity Charitable:
Fair market value of stock $50,000 $50,000
Long-term capital gains tax paid (23.8%) $7,140 $0
Your charitable donation / tax deduction $42,860 $50,000

In this scenario, by donating the long-term appreciated stock directly to a public charity like Fidelity Charitable, your charitable gift is almost $10,000 more than if you sold the stock and donated after-tax proceeds. In this hypothetical example, it also means you are eligible to deduct almost $10,000 more on your taxes.

Want to keep the stock in your portfolio?

After donating the long-term appreciated shares, you could purchase new shares of the same security at a higher cost basis, potentially minimizing future tax liability if you decide to sell at a later date.

The most appreciated stock in your portfolio is often the best to donate because it offers the greatest potential tax benefit. It is very possible that your portfolio contains powerful assets that you can tap into to make a difference, while wisely managing your financial future.

If you have held a highly appreciated stock for longer than one year, consider donating them directly to a public charity with a donor-advised fund program. If you’re a financial advisor to charitable-minded clients, look for appreciated stocks in their portfolios and consider helping them make this tax-savvy move.

1 Under policies set by the Fidelity Charitable Board of Trustees, Fidelity Charitable conducts a robust review of each grant recommendation to ensure grants are made only to IRS-qualified public charities, that those public charities use those granted funds solely for proper charitable purposes, and that grants do not confer impermissible benefits on donors or on any other person. Fidelity Charitable reserves the right to perform additional due diligence and to decline to make a recommended grant to a charitable organization.

2 This hypothetical case study is provided for illustrative purposes only. It does not represent an actual donor, but is meant to provide an example of how a donor-advised fund can help individuals give significantly more for the causes they care about. This experience may not be representative to the experience of all donors and/or advisors.

3 Total cost basis of shares is the amount of money you have invested in the shares of a particular fund or individual security. It represents the basic dollar amount that, when compared to the price at which you sell your shares, tells you how much of a capital gain or loss you have realized.

4 Amount of the proposed donation is the fair market value of the appreciated securities held more than one year that you are considering to donate.

5 This assumes all realized gains are subject to the maximum federal long-term capital gains tax rate of 20% and the Medicare surtax of 3.8%. This does not take into account state or local taxes, if any.

The tax information provided is general and educational in nature, and should not be construed as legal or tax advice. Fidelity Charitable does not provide legal or tax advice. Content provided relates to taxation at the federal level only. Charitable deductions at the federal level are only available if you itemize deductions. Rules and regulations regarding tax deductions for charitable giving vary at the state level, and laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of the information provided. As a result, Fidelity Charitable cannot guarantee that such information is accurate, complete, or timely. Tax laws and regulations are complex and subject to change, and changes in them may have a material impact on pre-tax and/or after-tax results. Fidelity Charitable makes no warranties with regard to such information or results obtained by its use. Fidelity Charitable disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation. 899257.2.0

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