Federal Tax Guidelines for Deducting Charitable Contributions of Appreciated Noncash Assets Valued at More Than $5,000

November 18, 2022

Mike Batts, CPA
Michele Wales, CPA

For purposes of this article, all references to charity or charities are intended as references to public charities such as churches, schools, hospitals, and other publicly supported organizations described in Section 501(c)(3) of the Internal Revenue Code. The rules for contributions to other types of 501(c)(3) organizations, including but not limited to private foundations, may be different from those described in this article. Regardless of the scenario, taxpayers should consult their own tax advisors to determine the rules that apply to their situation.

Donating appreciated property can be a highly effective tax strategy
Making a charitable contribution of appreciated property like real estate, stock, virtual currency, and certain other assets can not only benefit the recipient charity and its constituents, it can also provide a significant tax-savings opportunity for donors.

The advantage of donating rather than selling the asset and donating the sales proceeds

If a taxpayer donates appreciated property directly to a qualified charity, he/she will not be taxed on the appreciation in value. And the even better news…neither will the charity! That is because capital gains of U.S. 501(c)(3) public charities are not typically subject to federal income tax. The amount deductible by the donor will vary depending on the facts, but if the donor holds the property for more than a year prior to donating it, he/she may be entitled to a deduction of the full fair market value of the property contributed, with no tax on the gain! (Note that it is generally not a wise tax strategy for a taxpayer to donate property that has declined in value since the taxpayer acquired it.)

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