I made a large contribution of highly appreciated stock based on info that I could claim 30% of AGI to a qualified (501c3) charity. Received 1099s and H&R Block basic tax program. It allows me to deduct 50%. But now deduction consumes all of my ordinary taxable income and major portion of capital gains.
In this situation what is the tax rate on capital gains?
I calculated 9.6% on the rest.
Or if I deducted the $48,350 that is tax free for singles, I get an additional $7800 deduction before 15% accounts for the rest of the tax bill.
Can anyone clarify? The big deduction gave me the lowest tax bill in years and a very large refund.
This is all part of tax planning for next year. Clearly need to adjust withholding (from RMDs) and estimated taxes calculations.
I am assuming that this charitable deduction was to the CRUT or CRAT that you were discussing last year? (Because thatâs important - CRUTs/CRATs have different rules than âtypicalâ 501(c)3s, like a church or a non-profit educational organization.)
For a 2025 contribution: Was the contribution considered to be to a private nonoperating foundation that has/will distribute 100% of the contribution by March 15, 2026? And do you have evidence that the contributions have been distributed from the foundation? (Please note: if you are claiming the 50% deduction, you must include a copy of this evidence with your tax return.)
Distributing 100% of the contribution seems to be inconsistent with how I understand CRUTs/CRATs work. But if yours was set up to meet the requirements above and you have the evidence to attach to your tax return, then you can claim a 50% deduction. If not, then you can only deduct 30%.
So then the question becomes: Are you sure that your tax software understands:
That you gave highly appreciated stock; and
That the gift was to your CRUT/CRAT and not a âtypicalâ 501(c)3, like a church?
If not, the tax software is likely not giving the correct treatment to the deduction.
If you want to learn specifics about limits on charitable deductions so you can check if your tax software is giving the correct treatment to your deduction, I would suggest you start with IRS Pub 526 2025 Publication 526
LT capital gains rates are based on your taxable income, after deductions. If your itemized deduction actually eats up all of your ordinary income and some of your LTCG[1] then the next $48,350 of LTCG will be taxed at 0%
AJ
Questionable IMO if the contribution was to a CRUT or CRAT, since my understanding is that the deduction is limited to 30% of AGI, not 50% âŠď¸
Based on your advice I decided not to do a charitable remainder trust. But was advised to wait to see what Trumps Big Beautiful Tax Bill did w estate tax exemption before doing irrevocable trust. Could have put it all in trust when visited lawyer but tech stocks skyrocketed giving me multimillion dollar estate tax liability. So strategy now is give it to relatives as much as allowed. To charities to the limit. And hope to live long enough to raise estate tax exemption enough to cover.
When estate tax is too large gifting highly appreciated assets to charities is attractive. 40% estate tax, plus 18.8% capital gains, plus 24% fed and 5% state deduction means gift is 87.8% tax money. And 8 more in 32% tax bracket.
My plan was to donate $60k in stock based on $200k agi and 30% deduction allowed (and 5 yr carry over). But AGI turned out quite a bit higher and H&R Block program allowed 50% deduction. All NYSE stocks to 501c3 charity. Had to file form 8392? But not asked for other documentation.
Yes, you can see how well planned gifting could reduce income taxes to zero. I wonder if AMT would catch that.
AGI limits make it difficult to give away millions if you want tax deductions. If not deductible better to pay 40% tax.
Okay, so if you didnât do a CRAT or CRUT, then there are different rules. But they generally still limit you to 30% of your AGI. Assuming that you gave to a â50% limit organizationâ (which encompasses many charities - see the previously referenced Pub 526), you are limited to taking 30% of your AGI unless you choose an exception to use 50% of your AGI. However, using that 50% of AGI exception means that you can only deduct your cost basis in the stock, not the FMV. Since this is highly appreciated stock, you probably donât want to do this. From Pub 526 (with my highlighting)
So, I will again suggest that you need to make sure your tax software understands that you gave appreciated stock, not cash. If the software understands that, then I would suggest that you may need to contact customer support for the tax software, or see a tax preparer.
Thanks. The software does ask for dates of purchase and purchase price of each of the share lots gifted. They do have the info and allowed the 50% deduction. We shall see how it goes. I did estimated payments based on 30%. So should be ok even if challenged. 50% is reason for large refund.
I talked to a certified planner about assistance. He wanted $150K/yr to help. CPA spent two hours with me advising me to get ready to pay estate taxes. He did not charge me. He referred me to attorney who did irrevocable trust,
First of all, Iâm not sure why you are trying to account for the 24% and 32% brackets in this discussion. Those brackets are ordinary income brackets and have nothing to do with giving highly appreciated stock.
Even when talking about giving cash, the 24% and 32% brackets would only be applicable if you had received that money as ordinary income in the year that you also gave the money away. But you were going to have to pay that ordinary income rate whether or not you subsequently gave the money away. So itâs not really additive to the benefit you receive in avoiding the estate tax by giving money to charity - itâs just mitigating taxes that you already owed based on income you received.
Then, the 40% estate tax is a tax on the estate value above the lifetime exemption ($15MM for 2026). However, the estate tax is assessed on the stepped-up basis for the stock, so itâs just the 40%, not the 40% plus 18.8%. Compare that to 18.8% - 23.8% LTCG tax (even plus the 5% state tax that you are citing) while youâre still alive, and the capital gains tax still comes out ahead, assuming that you are selling only stocks that would have been subject to the estate tax.
So if you sell down enough stock to get your portfolio down to the estate tax limit, and then give that cash to a charity, you WOULD actually get to deduct 60% of your AGI, and pay less in capital gains taxes (18.8% - 23.3%) than the 40% estate tax that your estate would have had to pay if those stocks had remained in your estate at the same value. (Note that the estate tax would be even higher if the stocks increase in value at a rate higher than inflation.) The issue would be - can you give away enough to keep your estate below the lifetime exemption limit? If your estate tax liability truly is âmulti-millionâ (meaning that your estate is at least $20MM, so that your estate tax liability is $2MM - 40% of the $5MM over the $15MM limit), then you would have to give away at least $5MM in cash. You would have the year you gave the cash away, plus 5 additional years of carry-over to use that deduction. So it might be possible, but it would be challenging.
In any case, giving to charity is not going to be nearly 90% paid for by taxes you or your estate are avoiding. At most, it would be 40%, plus any estate or inheritance tax that your state assesses.
The problem is - if you file claiming the 50% deduction, receive the large refund and then get audited and itâs found that the deduction should have only been 30% instead of the 50% deduction you claimed, you will owe underpayment penalties and interest on the excess refund amount. Again, you need to call customer support for your tax software and have them explain why the software is allowing a 50% deduction when the IRS publication clearly states that only 30% is allowed for appreciated stock unless you are only claiming the basis of the stock as the charitable donation amount.
But I guess thatâs your risk to take. Good luck.
I disagree. Those contributions reduce your taxable income which gets taxed at 24% or 32%. That translates to $$ tax savings in my book.
I include capital gains tax in the calculation as otherwise you are stuck paying estate taxes on the gains.
And by the way you give up stepped up basis when you move assets to an irrevocable trust.
Yes, stepped up basis is a very attractive strategy but not for another 20 years. But does not avoid estate taxes which are much higher. Once you cross the estate tax exemption everything changes and stepped up basis is less attractive.
You are adding capital gains taxes plus ordinary income taxes. Itâs either/or. And since you were asking about donating appreciated stock, ordinary income taxes should not be a part of this equation. Claiming that avoided taxes are paying for nearly 90% of your charitable giving does not math.
Not if the irrevocable trust is counted as a part of your estate.
And if you place the stock in an irrevocable trust that will be separate from your estate, then you arenât really saving the 40% estate tax. You are giving up some of your lifetime credit, meaning whatâs left in your estate will have a lower exemption before the estate tax will be assessed. And if you end up putting so much into the irrevocable trust that you exceed the lifetime credit, any additional contributions will be charged a 40% gift tax. So thatâs not avoiding the estate tax on anything other than the capital gains that occur after the stock is placed in the irrevocable trust.
However, because the step up will be lost, the trust will end up with your basis in the stock, so that when the stock eventually is sold, all of those capital gains, both those from prior to placing in the trust and after being placed into the trust will end up being taxed - either at (higher) trust rates or at the beneficiaryâs marginal capital gains rate, depending on how the trust is set up. So placing those assets in the trust isnât avoiding capital gains taxes - itâs just kicking the can down the road, and losing the step up to do so.
Look, obviously, you are focused on avoiding the estate tax at any cost, even if it ends up costing you more than the estate tax would have cost your estate. Thatâs your choice.
The main advantage of irrevocable trust is growth stocks can grow for heirs w/o increasing estate tax.
Giving away highly appreciated stock (to the limits of deductions) to me is better than paying the money to govt as taxes. But the number involved are small and wonât make much difference. Charities appreciate it though. Good ones are worth the effort.
Similarly gifting shares to heirs to the limits of the law is a good idea but takes a long time to give away amounts involved.
the heirs inherit the original basis for the stocks, so they will pay taxes on all the growth since the stock was purchased, rather than just the growth after you die because of the step up;
the value of all assets placed in the trust use up the lifetime exemption;
once the lifetime credit is used up, there will be a 40% gift tax assessed on any additional assets placed in the trust;
any assets remaining the estate will still be subject to the estate tax based on the lower (if any) lifetime exemption that is left; and
If the trust sells anything, the taxes will either have to be passed to the beneficiaries to be paid at their marginal rates, or paid at the higher trust rates.
Once your estate exceeds the lifetime exemption amount, if you want your heirs, rather than charities, to receive a substantial portion of your estate, you may as well resign yourself to paying either estate or gift taxes. Or you could hope for a huge market crash.
And the other aspect is that the estate tax exemption is indexed to inflation and might increase a million or more per year. This gives some hope that more assets can be protected from estate tax (if you live long enough). But it is a horse race. Not a sure winner.
I got an intentionally defective grantor trust. This avoids high trust tax rates at least for me. I pay taxes on trust income at ordinary income tax and capital gains rates. Heirs probably can gift to others from the trust w/o paying estate taxes but will pay full capital gains based on cost when sold. Still much, much better than estate tax rates.
Except your assets left out of the trust will grow, too, and generally at a rate thatâs faster than inflation unless you keep them in CDs, money markets or bonds. And even those investments, there is a possibility they could grow faster than inflation. Plus, you just said here Stock Allocations in Retirement
So you are more likely to increase your estate subject to estate tax each year.
As I said, itâs likely you can either hope for a really big market crash, or resign yourself to paying estate tax.
Actually now that growth stocks are in irrevocable trust, revocable trust mostly holds stocks that have matured but w cap gains too big to sell. Those are stepped up basis candidates. Includes the magnificent seven. Iâm working to convert those to growth stocks within my cap gains budget.
Using charity donations to allow more capital gains is one possibility. $200k AGI at 30% gives $60k donation, $14.4k tax deduction at 24%, allows $96k cap gains for equal tax bill.
Also have large Ira and rising rmds. Invested aggressively in growth stocks. Up 39% last year. And have large Vanguard acct mostly in S&P mutual funds.
Yes, not likely to beat the tax man. Best idea is to spend it down. But canât buy yacht or tropical island. Those are still in estate. Would be quite a vacation!!
The Mag 7 seem to be in for a roller coaster ride. Others have better growth prospects. May trim some w/I my budget. But cannot go fast. And I donât expect them to crash.
Looks like direct RMD donation to charity may be better than gifted highly appreciated shares. RMD donation can be more than 30% of AGI.
Presumably, you are talking about QCDs (Qualified Charitable Contributions) when you say âdirect RMD donation to charityâ? If so, please be aware that itâs not really an âRMD donationâ.
As long as an IRA holder is at least 70 1/2 years old, they can make QCDs up to the annual limit (for 2026, itâs $111,000 and is indexed by inflation each year), no matter what their RMD amount is. If their RMD is less than the annual limit (or they have no RMD because they are between 70 1/2 and 72), they can still make a donation up to the annual limit amount. As long as the QCD is more than any RMD they are required to take, it will count for their RMD. On the other hand, if their RMD is greater than the annual limit, they can only do a QCD up to the annual limit, and must satisfy the rest of the RMD requirement by taking a withdrawal. So, while the QCD can be used to satisfy some/all of the RMD amount, the QCD itself is not limited by the RMD - just by the QCD rules. So, itâs not really correct to call it an âRMD donationâ.
The QCD must go directly from the IRA to the charity and the IRA holder must be at least 70 1/2 years old at the time of the QCD. As long as those rules are followed, the QCD amount does count towards any RMD amount that is required for the year, but does not count toward AGI.
Not exactly. QCDs originally were limited to $100k a year, but have been indexed to inflation since 2024. As I said above, the 2026 limit is $111k.
Since QCDs arenât added to income in the first place, itemizing a QCD would actually be double dipping by not counting it as income and then reducing the rest of your income by the donation amount.
