Giving rises after IRS allows deduction of donated property's market value


December 13, 1993|By LESTER A. PICKER

Uncle Sam sometimes giveth and Uncle Sam taketh a lot (Book of IRS: 3:6). This year the IRS takes the cake. They are giving back something they took away in 1986. But, let's not complain, because this time they got it right.

For the first time in many years, everyone can deduct the fair market value of stocks and certain other properties donated to charity. That's because property donations will no longer be disallowed under the dreaded Alternative Minimum Tax (AMT), according to Timothy Sharpe, of the Washington office of the Sharpe Co., the respected counseling firm for charitable gift planning started by his father some 30 years ago.

In 1986, and effective for the 1987 tax year, many individuals could only deduct the cost basis of an item donated to charity. This had far-reaching impact on many charitable institutions, especially museums. As a result, for several years following the 1986 tax changes, art museums were hurt by the ruling. Wealthy patrons were reluctant to donate paintings and other art objects that had considerably appreciated in value.

The drop was so precipitous, Congress granted a one-year reprieve to charities in 1990. Sure enough, donations once again came pouring in through this window of opportunity.

This year Congress has rescinded the ban altogether, sweetening the pot by removing the donated items from calculations for the AMT. While it is too early to tell with certainty, we are already hearing anecdotes from the field that preliminary signs are good.

"Our individual giving is up 21 percent," reports Duncan Hartley, director of individual giving at Memorial Sloan-Kettering Cancer Center in New York. "It's our best year ever for planned gifts, up more than 30 percent. The interest is beyond anything we've ever seen."

Mr. Hartley believes the prior tax laws had an inhibiting effect on large gifts of appreciated property such as stocks or real estate.

"This was a big factor with some of our wealthy donors. They held back due to the AMT before," he said. Mr. Hartley reports that the cancer center expects to raise more than $70 million this year, a record. Much of the increase he attributes to year-end giving triggered by the tax law changes.

One doesn't have to be wealthy to use the new law to help a charity. Let's say an employee bought $2,500 worth of her company stock some 15 years ago. That stock is now worth, for example, $10,000. She can deduct the full $10,000. And, since a donation is not a sale, there is absolutely no capital gains tax due on the appreciated value, a big savings for someone at the 28 percent capital gains tax bracket. That means the gift will cost that person a whole lot less out of pocket, while helping a favorite charitable cause.

Philip Adcock, director of planned giving at the national headquarters of the American Cancer Society, concurs about the effects of the new law on charitable giving.

"We've noticed a pickup in activity, both from current and deferred major gifts. Gifts of appreciated property have really increased to our organization," Mr. Adcock reports.

Mr. Sharpe, whose company is a leader in major gift planning services, suggests that people take advantage of this gift from Congress to American charities. "Interested donors should list all their existing pledges and other gifts they want to make, then list their appreciated assets. They should then discuss these with their financial adviser, since there are so many creative ways to ,, make their gifts work for the charity, while legally taking advantage of Congress' intent by lowering their own taxes," he says.

One word of caution. For deductibility in 1993, any such gifts must be made by Dec. 31. However, since the tax change is "permanent," there's always next year.

(Lester A. Picker is a philanthropy consultant. Write to him at 71 Bathon Circle, Elkton, Md., 21921; [410] 392-3160.)

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