Donating Cash vs Non-Cash Assets

In honor of National Philanthropy Day, below is a brief primer on the tax benefits of charitable contributions/donations.

Fortunately for US taxpayers, the IRS provides income tax benefits for charitable donations and capital gains tax benefits if those donations are made with appreciated assets. See below:

Asset
Income Tax Deduction
Capital Gains
Tax Avoided
Cash
Value
n/a
Short-Term Appreciated Assets
(Held <1 year)
Cost Basis
Yes
Long-Term Appreciated Assets
(Held >1 year)
Market Value
Yes
Depreciated Assets
(don’t donate these 😉 )
Market Value
n/a

Obviously, the dual impacts of receiving an income tax deduction and avoiding capital gains tax are beneficial. Consequently, the above methods can be used to dispose of assets or reallocate/rebalance portfolios in a tax-efficient way. I should note that the above is a high-level overview and there are additional tax issues to consider, so donors should consult with their tax adviser before making any donations.

What assets can be donated?

  • Liquid securities suchs as stocks, bonds, mutual funds, ETFs, derivatives, and so on.
  • Illiquid assets such as insurance contracts, restricted stock, employer stock options, business interests
  • Real assets, such as real estate or commodities
  • Other complex and esoteric assets

Many organizations are setup to accept liquid securities, but most do not have the resources to accept illiquid and/or complex assets. Typically, these can only be donated to (larger) well-resourced organizations or contributed to a foundation or donor-advised fund before being granted out to the end charity. Future posts will cover various charitable vehicles and strategies.

Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Disclosures & Disclaimers page for a full disclaimer.