What is a Stock Gift? Legal Insights and Key Benefits
Definition & Meaning
A stock gift is a type of donation where an individual transfers shares of stock to a charitable organization or another person. This method of giving can provide significant tax benefits, particularly by allowing the donor to avoid capital gains tax on the appreciation of the stock's value. In essence, when you donate stock that has increased in value, you can contribute to a cause while potentially reducing your tax burden.
Legal Use & context
Stock gifts are commonly used in charitable giving and estate planning. They fall under the broader category of gift law, which governs how property can be transferred from one individual to another. This term is often relevant in tax law, as donors may need to understand the implications of their donations on their taxable income. Users can manage stock gifts through legal templates available on platforms like US Legal Forms, which provide guidance on the necessary documentation and procedures.
Real-world examples
Here are a couple of examples of abatement:
Example 1: Jane owns shares of a technology company that she purchased for $1,000. After holding the shares for three years, their value has increased to $5,000. Jane decides to donate the shares to a local charity. By doing so, she avoids paying capital gains tax on the $4,000 appreciation and can claim a tax deduction for the full $5,000 value of the stock.
Example 2: John has shares in a mutual fund that he bought for $2,000, which are now worth $3,500. He gifts these shares to his friend, who plans to sell them. John will need to report the gift on his tax return, but since he has held the shares for over a year, he does not incur capital gains tax on the appreciation. (hypothetical example)