December 2005 Featured Article
Strategic Moves at Year-End
Planning to get the best tax results next April is like playing a game of financial chess: Making a few strategic moves now can result in you "checkmating" Uncle Sam a few months from now at tax-time.
Usually, gifts of long-term appreciated property will generate the most favorable tax benefits for you. That's because you avoid any potential capital-gain tax and receive a charitable deduction for the full fair-market value (FMV) of the property (in most cases). Consider these advantages of making a charitable gift before December 31:
Avoidance of capital-gain tax
If you make an outright gift of long-term securities or real estate, you avoid paying the capital-gain tax on the property's appreciation. If you sold the property and contributed the proceeds, the amount you could give would be reduced by capital-gain tax as high as 15%. Instead, you would realize greater savings by contributing the property itself and avoiding the tax altogether.
Example: For some time, Kate, who is in the 33% tax bracket, has wanted to make a significant gift to The University of Michigan. She owns appreciated securities she bought for $10,000 several years ago that are now worth $40,000. If Kate sold the securities with the intent of giving the cash proceeds to us, she would have to pay a capital-gain tax of $4,500 on the $30,000 appreciation at the 15% capital-gain tax rate ($30,000 x 15%). This would reduce the size of her gift to $35,500 ($40,000 - $4,500).
If, however, Kate gave the securities to The University of Michigan, she would avoid the capital-gain tax and claim a $13,200 charitable deduction on her gift. She would also have the satisfaction of knowing our organization would receive the full $40,000 value of the stock.
Charitable deduction
Usually, for a gift of long-term appreciated property, you can deduct—in the year of the gift—its full fair-market value, subject to a limit of 30% of your adjusted gross income (AGI). Any excess can be carried forward for up to five additional years. (By contrast, gifts of short-term capital-gain property provide a deduction for only the donor's cost basis in the property.)
Don't forget that Hurricane Katrina relief legislation has increased the deductible limit for gifts of cash from 50% to 100% of your AGI for the remainder of 2005. Please click here to see our previous article on the opportunities this legislation presents.
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Office of Planned Giving
University of Michigan Office of University Development
734-615-2022 • toll free 866-233-6661 • Contact Us
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