Phoenix Tax Accountant | Donations of Appreciated Property
Donating a piece of appreciated property can have a substantial benefit to your personal income tax return over selling the item and donating the proceeds. Appreciated property could be anything from a piece of artwork, antiques, real estate or stock in a company. It does not, however, include, ordinary income property like inventory or artwork you created. You will need to have owned the property in question for over one year to take advantage of this tax benefit.
Donating the property directly to the charity is better than selling the property and donating the proceeds. For example, you have a piece of artwork that you purchased 5 years ago for $500. The artwork is now worth $2000. If you sell the art and donate the proceeds, you end up with these results: Donation of the sale price times the 28% capital gains rate on collectibles gives you a tax savings of $560. But you also have a capital gain of $1500 to deal with. $1500 times the 28% tax rate gives a tax cost of $420. Resulting in a net tax benefit of $140. Now, let’s say you donate the property directly. You would have the same contribution amount or $2000 resulting in a tax benefit of $560, but you do not have to realize a capital gain on the sale since the property was not sold. You receive the benefit of $560 without the gain resulting in a net tax benefit of $560.
You do not, however, want to donate property that has depreciated in value. In these cases you would want to sell the property and donate the proceeds. You would be able to deduct the donation value and take the capital loss on your tax return.
If you have any questions on this or any other income tax matter, feel free to contact us at Dusseau & Makris, PC, your Phoenix Tax Accountants.