Charitable Giving with Assets
The benefit of gifting an appreciated asset is we avoid recognizing a long-term capital gain and also received a tax deduction.
Most of us have benefited from a strong stock market and may own a mutual fund or stock that has an unrealized gain. As a general rule, individuals do not pay tax on their investment until the gain is realized (the investment is sold in return for cash). If the investment is owned for less than a year, then the gain is taxed at a short-term capital gains rate. Subsequently, if the investment is held for more than one year, then the gain is taxed at a long-term capital gains rate.
The IRS encourages investors to hold their investments as long as possible and, as such, taxes long-term investments at a substantially reduced rate compared to short term investments. When a donor makes a gift of an appreciated asset to a charitable organization, the donor can avoid recognizing a long-term capital gain and also receive a tax deduction. Charitable organizations make donating appreciated assets relatively easy - there is minimal paperwork and the benefits to both the donor and organization are valuable.