Do you have property that you have owned for more than one year that costs more than you paid for it? If you sell that property, you will owe capital gains tax on the appreciation. And with the 2013 capital gains tax rate at the highest it has been since 1997, charitable gifts of appreciated property make sense now more than ever before.
Are You Subject to the High Capital Gains Tax Rate?
The top income tax rate in 2013 is 39.6 percent for individual filers with incomes above $400,000 and for married couples filing jointly with incomes above $450,000. If you fall into this category, your rates for long-term capital gains and qualified dividends have been raised from 15 percent to 20 percent this year.
In addition, a 3.8 percent Medicare tax has been put into place on investment-type income and gains in 2013 for those who file individually with adjusted gross incomes exceeding $200,000 and married couples who file jointly with adjusted gross incomes exceeding $250,000. That means you could owe as much as 23.8 percent on any gain when selling long-term appreciated property. In those states that also have a state tax, the combined capital gains tax rate will be even greater.
Example: Why a Donation Makes Sense
If you fall into the top income tax bracket, because of the high capital gains tax rate, you more than anyone may want to consider the tax benefits of donating appreciated property to us instead of cash this year. Look over the chart below to see the net cost of a gift of cash vs. stock.
Gift of Cash vs. Stock: Which Costs You Less?
|
Giving $100,000 Cash
|
|
|---|---|
| Value of your gift | $100,000 |
| Tax savings from use of charitable deduction (39.6 percent rate) | $39,600 |
| Tax savings from elimination of capital gains tax (20 percent rate) | N/A |
| Your net cost | $60,400 |
| Giving $100,000 in Appreciated Stock* | |
|---|---|
| Value of your gift | $100,000 |
| Tax savings from use of charitable deduction (39.6 percent rate) | $39,600 |
| Tax savings from elimination of capital gains tax (20 percent rate) and Medicare tax (3.8 percent) | $9,520 |
| Your net cost | $50,880 |
| *Originally purchased for $60,000, resulting in a gain of $40,000 |
Should You Consider This Type of Gift?
While gifts of appreciated property offer additional incentives in 2013 if you are subject to the higher tax rates and Medicare contribution tax, these types of gifts prove tax-wise for all individuals any time. Contact us to learn how you can benefit.