*Editor's Note: This blog was originally posted in February 2017 but has been updated as of February 11, 2020 for accuracy and comprehensiveness.

Charitable contributions are a great way to benefit those in need with the added perk of a tax deduction. But what is the best way to give? Cash or appreciated stock?

A refresher on charitable contribution deductions

As we point out in a past blog, a common tax saving method, especially at year-end, is donating to charity. A donation to a qualified charitable organization can be deducted on schedule A of your federal income tax return as an itemized deduction. Donations can be made in the form of cash, property or appreciated shares of stock.

Cash vs. stock donations

Generally, it is much more beneficial to donate appreciated securities rather than cash.

Why?

When you donate appreciated securities you get a deduction for the Fair Market Value (FMV) of the stock. You are able to avoid the capital gain if you were to sell the securities.

Should I donate shares with a high or low basis?

This works best if you are donating shares that have the lowest basis. If you have a very low basis stock position that you still want to maintain in your portfolio, you can donate that low basis block of shares and buy the same number of shares currently. You avoid the capital gain and, the wash sale rules do not apply, so you don’t have to wait 30 days to re-purchase.

Then, you still have the same value in your portfolio, but you’ve essentially given yourself a “step-up” in basis, without having to recognize a gain!

Is it ever more beneficial to donate cash?

The only time it might be less beneficial to donate appreciated stock is if your income is very low. The deduction for donations of appreciated stock to public charities is limited to 30% of your AGI whereas cash donations are subject to a 60% of AGI limitation. Any amount over the 30% threshold would be a carryover for up to 5 years. So, the full deduction may take several years to complete.

2019 Update

The TCJA changed the federal income tax rates on capital gains tax and dividends which are scheduled to last through 2025.

Here’s what’s new.

While the TCJA retained the 0%, 15% and 20% on long term capital gains (LTCGs) from assets you’ve owned for more than one year and for qualified dividends, these rates now have their own brackets. Under prior law, these rates were tied to ordinary income brackets.

For 2019 filing season, here are the rate brackets for LTCGs and dividends:

Note: The 2020 brackets have been released and are adjusted for inflation.

Though it may be tempting to simply write a check to a charitable organization, giving appreciated stock is a much more effective donation method in terms of tax savings! Contact any member of our Tax Services Team for more guidance.