Looking for a way to improve your financial picture before the clock strikes 12 on December 31? Giving appreciated property to charity may be the answer.
One of the most effective ways to deal with your year-end tax situation is by maximizing deductions that reduce your taxable income. The most flexible tax tool at your disposal is the charitable contribution deduction: it allows you complete control over the timing and extent of your deduction as well as the choice of assets to use to fund your gift.
Over the years many donors have come to realize that long-term appreciated property is one of the best assets that can be used to fund charitable gifts. This is true for two main reasons: the charitable deduction and the avoidance of capital-gain tax.
Deduct the full fair-market value
First, a donor can generally take a deduction for the full fair-market value of the property—if the donor itemizes deductions on his or her federal income-tax return. That has become a much bigger “if” since the passage of the Tax Cuts and Jobs Act passed at the end of 2017.
Many provisions of TCJA are anticipated to lead to a dramatic decrease in the number of taxpayers who itemize in 2018 and in the future. Primary among them is a near-doubling of the standard deduction taxpayers can elect to use in lieu of itemizing deductions. Moreover, the new law reduces other deductions, capping at $10,000 ($5,000 for married taxpayers filing separately) the amount of state and local taxes (SALT) that can be deducted and also restricting mortgage interest deductions to those on total principal of $750,000 or less ($375,000 for married filing separately).
Avoid capital-gain tax
There is a second valuable benefit to giving long-term appreciated property: you do not generally have to recognize or pay tax on any of the appreciation over your basis that you have realized during the time you have owned the property. Capital-gain tax rates can be significant, though they vary according to the type of property given. For example, the rate can be up to 20% on securities but as much as 28% on tangible personal property such as works of art or book collections.
In addition, if your modified adjusted gross income exceeds $200,000 for single people or $250,000 for those who are married filing jointly, you can also be subject to an additional 3.8% tax on investment income. So even if you do not itemize deductions, you may still realize major tax savings by giving long-term appreciated property instead of selling it and giving the proceeds.
Contact us today to discuss these strategies as part of your year-end planning.
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