How do I us Capital Gains for our Charitable Donations?

[Badovinac]

Hi Mike,

       Thanks for your help. 

      I am having a great deal of difficulty finding lined 9241 any where. 

                         Ed

[Badovinac]

Hi again Mike,

        When I refer to number I am referring to the line location.

                    Thanks,

                              Ed

[SteamTrain]

@Badovinac 

Mike is over in this other thread (so he doesn't know what you are posting here):

What is the tax number for Deductions & credits? (intuit.com)

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But I doubt even he has a clue as to what you mean by line 9241  (didn' find that as a form number either), so it's going to take your explaining a heck of a lot more about "exactly" what you are trying to do before anyone will be able to attempt to help you.

[VolvoGirl]

And are you working on a USA federal tax return form 1040?   Or maybe a state return?  Or maybe Canada?

[Badovinac]

What I basically want to do is use some of my Capital gains that I have earned this year to us for charity rather than the cash from the bank. This will give additional tax benefits. I will not be paying tax on the amount of Capital gains used for the charity as well I will I will get the basic charitable benefit. There is a way it can be done but I do not know how and where to claim it.

                  Thanks for all your help.

                                Best,

                                       Ed

[VolvoGirl · Accepted solution]

You can only avoid the tax by making a QCD qualified charity distribution from a IRA or retirement account.  Is that what you are asking?  To avoid the tax on personal investments you can give the actual shares to the charity.  But if you sell it doesn't matter what you do with the proceeds.  It is taxable.  

[Badovinac · Accepted solution]

Hi Girl,

      I could be mistaken however by donating any investment (not just Capital Gains) would avoid any tax. but it had been explained that the tax would not be applied if it was done in some way using Capital gains.

                              Thanks for all your help,

                                               Ed

[SteamTrain]

If it's a stock or mutual fund?

One way is to donate/transfer the Stock or Mutual fund shares (that have capital gains you are sitting on) to a Donor Advised fund (Charitable Gift Fund).  Fidelity runs one, and I think Vanguard does too...and there are probably a few others out there.  Then you can "recommend" grants out of that to the various valid charities you want to, either anonymously, or with your name noted.

BUT

Only the original transfer of shares into the Donor Advised fund is considered a charitable contribution as the full value of the shares on the date donated...all grants you make out of the fund, you can then recommend at your leisure, but do not get any additional deductions, since you got it all with the original transfer into the fund.   (Generally, you don't have to grant out all you donated in the same year, but the fund may have minimum %s that you need to send out)

At the end of the year, the Donor advised fund will issue you a form 8283, which notes the dates, the name of the shares donated, & $$ values of the contributions you made into the fund...and you enter those as Stock/Mutual fund share donations into the tax software in the charitable contributions area of the software, which generates the equivalent form 8283 as a worksheet.

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I seem to recall that you should only donate long-term holdings  (but I'm not sure of the why? details, and could be wrong).

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You should check with your own Brokerage/Mutual fund provider to see if they offer a Donor advised fund, for easiest account creation, and transfer of shares. 

BUT

Here's the Fidelity link where you can read about their Donor Advised fund, and how theirs works.

Fidelity Charitable Donor-Advised Fund Official Site

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If its something else like land, or property, or conservation easments....I don't know how those work.

[SteamTrain]

You do have to donate the actual shares themselves...and only then does the cap gain not get added to your AGI.  and get a charitable contribution on top of it  (if you can itemize)

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IF, instead,  you first take a Capital Gain by selling something in your Brokerage or Mutual fund regular account, that gain will be added to your AGI.  Yeah, you can then donate cash to a charity or DAF to essentially balance it out...but your AGI has already been bumped. 

(and mid-year or year-end Cap Gains distributions from Mutual funds, where you didn't actually sell anything yourself, cannot be avoided)

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Simplified Examples (Ignoring Std Deductions, and all other income deductions), 100,000 regular wage income....and 30,000 of cap gains....two ways:  

1) 100,000 income and donate/transfer stock/Mutual Fund shares worth a total of 30,000 to a DAF.   AGI is still a straight 100,000, but 30,000 is then deducted as a charitable donation to give you a taxable income of 70,000

...OR....

2) 100,000 of income...cash in sufficient shares that produces a cap gain of $30,000, but then donate the $30,000 cash to the DAV (or any registered charity).  AGI is 100,000 + 30,000 cap gain = 130,000, subtract 30,000 of charity donation to end up with $100,000 taxable income.

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Another part of the difference, is that:

a)  in situation #1, you are donating full shares, which includes basis...not just the cap gains part....but then, none of the cap gains are being added to your AGI .

b) in situation #2, it depends on what level of cap gains you are sitting on...how many shares do you have to sell to generate a similar 30,000. (If you are trying to compare these two 1-to-1)

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(later edit:)  I guess one could do a #3 too: sell just 30,000 total of stock (or Mutual Fund) shares and contribute just the sub part that was cap gains, as cash to the DAV (or other charity)...but again, whatever the Cap Gains are, they will add to your AGI this way too.

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Only #1 lets you donate shares, such that the cap gains they contain do not add to AGI......but it's both basis and  cap gains that you are donating.

[SteamTrain]

Of course, if you don't have enough total deductions to itemize in the first place, all the wrangling either way gets you no advantage taxwise..... just good karma for contributing to charities dealing with disaster relief, food banks...etc...etc.

[SweetieJean]

I think OP may be in Canada:

Capital gains realized on gifts of certain capital property - Canada.ca

[SteamTrain]

@SweetieJean 

Cripes....line "9241" may make some sense then.....I saw some other stuff related to Canada with a line numbering system in the thousands...but couldn't find that particular line number (though I didn't spend much time looking around).   But from reading some of your link, it looks like Canada does things somewhat similar to USA for donations of the actual securities....but we can't know their details nor limits. 

(nor even if they have or allow donations to Donor Advised Funds  )

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@Badovinac 

IF you are asking about CANADA tax returns?   This is the USA tax community website, and all suggestions refer to USA taxes...if you are going to be preparing and filing a Canada tax return, you need to go to the following link for help:

TurboTax Support CA (intuit.ca)