Capital assets include stocks, bonds, real estate, art, and antiques. The amount a donor can claim as an income tax charitable deduction depends on whether the property is considered short-term or long-term capital gain property. The long-term holding period is a 12 months plus a day. Short term property is that which is held for 12 months or less.
Long-Term Capital Gain Property
For gifts of long-term capital gain property, the donor can generally claim a federal income tax charitable deduction for the fair market value of the property. To take a simple example, assume Jill Donor has held publicly traded stock for more than one year. The stock is valued at $10,000, which Donor bought for $1,000, i.e., the stock has a cost basis of $1,000. If Donor makes a gift of this stock to a qualified charitable organization, she can claim a deduction for the full fair market value of the stock, $10,000.
Short-Term Capital Gain Property
For short-term capital gain property, the value of the federal income tax charitable deduction is limited to the cost basis. Another example: assume Jill Donor held publicly traded stock for 364 days. The stock is valued at $10,000, which has a cost basis of $1,000. If Donor makes a gift of this stock to a qualified charitable organization, she can claim a deduction for only the cost basis of the stock, $1,000.
As you can see, it’s generally advisable to delay a gift of appreciated property until the long-term holding period can be met.
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