Gifting Depreciated Stock: Is It a Smart Move?

What Happens When You Gift Stock Held Long-Term but at a Loss?

If you’ve held stock for more than a year and its value has dropped below what you originally paid for it, you might wonder: Is it a good idea to gift this stock to charity? While donating appreciated stock can be a powerful tax-saving strategy, the rules change when the stock’s value has declined.

Let’s break it down.

Deduction Limits: Fair Market Value vs. Cost Basis

When you donate stock to a qualified charity, the value of your tax deduction depends on the stock’s fair market value (FMV) at the time of the gift—not the amount you originally paid for it (your cost basis).

If the FMV is less than your cost basis (meaning you’re at a loss), your deduction is limited to the FMV. In other words, the IRS doesn’t let you claim a deduction for the amount you lost.

For example:

• You bought stock for $10,000, but it’s now worth $7,000.
• If you donate the stock, your deduction is limited to $7,000, the current FMV.
• The $3,000 loss is essentially forfeited—you cannot deduct it as a capital loss on your taxes.

Why Selling the Stock First Might Be Smarter

Donating stock at a loss isn’t usually the most tax-efficient move. Instead, consider selling the stock first, realizing the loss, and then donating the cash proceeds to charity. Here’s why:

1. Claim the Capital Loss: By selling the stock, you can deduct the loss on your taxes, which can offset other capital gains or up to $3,000 of ordinary income annually (if you have no gains).
2. Donate the Proceeds: After selling, you can donate the cash to charity and claim a deduction for the cash gift.
3. Maximize Tax Benefits: This two-step process allows you to take advantage of both the capital loss and the charitable donation deduction.

When Might Donating Loss Stock Make Sense?

There are limited cases where donating stock at a loss might still be appropriate:

• If you’re simplifying your investment portfolio and don’t want to deal with selling the stock.
• If the transaction costs of selling the stock are prohibitively high.
• If you’re focused more on the charitable impact than on maximizing your tax benefits.

Tips to Remember

1. Know Your Numbers: Always compare the stock’s fair market value to your cost basis before deciding to donate.
2. Consider Selling First: Selling the stock and donating the proceeds can often maximize your tax benefits.
3. Consult a Professional: Tax strategies can get complicated, so it’s wise to work with a financial advisor or tax professional to make the best decision.
4. Focus on Impact: While tax benefits are important, don’t lose sight of the bigger picture—supporting causes that matter to you.

By understanding the rules and considering your options, you can make informed decisions about how to handle stock at a loss while still achieving your philanthropic goals.

Reference: IRS Publication 526