Gifting depreciated property

Unlike gifting appreciated property, gifting depreciated property to charity is not a good idea tax savings wise. You cannot deduct the loss of the depreciated property. If you have a depreciated property, you are better off, for tax purposes, selling the property and donating the proceeds from the sales to the charitable organization of your choice.

Selling property at a bargain Vs gifting property

Which is better, selling property at a bargain to a charity or gifting property to charity? Some people sell their property to charitable organizations at a bargain price to help them recover some of the cost of the property since the property is depreciated heavily in price. Sales of depreciated property is treated as part charitable contribution and part sale. The IRS tax savings from bargain sales are less than the IRS tax savings from donating the property directly to charity.

Donating the sales proceeds of the depreciated property to charity allows you to deduct the charitable contributions and recognize a loss on the tax return.

Example of comparison of gifting depreciated property Vs. selling and donating proceeds

You bought stock 2 years ago for $10,000. The stock is now depreciated to $7,000. You are in the 28% tax rate bracket. IF you give the stock to charity you can only deduct $7,000. Your tax savings is $7,000 x 28% = $1,960.

However, if you sell the stock for $7,000 (the depreciated value of stock) you can deduct the $7,000 proceeds you give to the charity. Moreover, you can recognize the loss of $3,000. Your tax savings from the donation is still $1,960. However, you also get the tax savings of $840 ($3,000 x 28%) from deducting the loss from the sales of depreciated property.