Using appreciated stock held over a year to fund a significant contribution to a public charity instead of cash can result in a “double play”. You can get the benefit of a deduction equal to the full fair market value of the shares and at the same time avoid paying capital gains tax on the appreciation.
Making a charitable contribution using publicly traded stock is fairly simple. For contributions of more than $5,000, you must attach Form 8283 with a description of the shares contributed, their fair market value, how you acquired the shares and your cost basis. In addition, as is true for all contributions over $250, you must obtain written contemporaneous acknowledgement of your contribution from the charity, which must include a statement that you did not receive anything of value in return for making the contribution.
The same result can be attained with a charitable contribution of non-publicly traded shares. However, for gifts valued at more than $10,000, there is an additional requirement. In order to secure a deduction, you must get a “qualified appraisal”. A qualified appraisal is a complex and detailed document, which must be prepared and signed by a “qualified appraiser”. While it generally does not have to be attached to your tax return, the appraisal must be obtained before the due date, including extensions, for filing your income tax return on which the deduction is claimed.
We are often asked about charitable contributions involving non-publicly traded stock and business interests, where the appraisal requirement seems redundant and completely unnecessary. Consider a contribution of an interest in a partnership whose units are freely exchangeable for shares of publicly-traded stock; or, a contribution of shares in a corporation whose shareholders are subject to a “buy-sell” agreement, which clearly sets the value of the shares; or, a contribution of shares in a closely-held corporation whose shares have traded in many arms-length transactions during the year. Unfortunately, even when an appraisal is redundant, the Code and Regulations strictly require that you get an appraisal.
What if you have made a significant charitable contribution of appreciated non-marketable securities in 2016 and you have not yet obtained a qualified appraisal? You should consider requesting an extension to file your 2016 income tax return before the April 18, 2017 deadline, so you have until October 15 to get your qualified appraisal. No appraisal means no deduction, or at best, your deduction will be limited to your cost basis instead of the fair market value.
CONSULT YOUR TAX ADVISER — this article contains general information about various tax matters. You should consult your CPA regarding the implications to your own particular situation. George Ashley is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno. He may be reached at 775-831-7288, and welcomes comments at GAshley@ashleyquinncpas.com.