Selling
Stock vs. Giving for Income 
Sell Stock or Give It Away?
You May Be Surprised.
If you own appreciated stock that you’d like to
reinvest, you should consider donating some or all of it to establish a gift annuity.
Consider the following situation.
John and Mary Smith, both 72 years old, own stock with a
market value of $100,000 and a cost basis of $25,000. They would like to dispose of it to
increase their annual cash flow and decrease their exposure to market volatility.
One option is to sell it and reinvest in a bond paying 6% annually. Another option is to
use the stock to establish a gift annuity paying 7% annually. John and Mary might compare
these options as follows:
Gift Annuity
Sell/Reinvest
| Principal Value |
$100,000 |
$100,000 |
| Capital gains tax due |
-0- |
20,000 |
| Principal reinvested |
100,000 |
80,000 |
| Nominal annual return |
7% |
6% |
| Pre-tax annual income |
7,0001 |
4,8002 |
| After-tax annual income |
5,344 |
3,072 |
| Projected total income (18 years) |
96,192 |
55,296 |
| Charitable deduction |
29,4493 |
-0- |
| Income tax savings (36% bracket) |
10,602 |
-0- |
| Potential estate tax savings (55%) |
55,000 |
-0- |
Further analysis may well find that the benefits associated with a gift annuity actually
exceed those of selling and reinvesting. In 1999, a class of Economics and Business
students at Mines, under the guidance of Dr. Franklin J. Stermole, examined this question
under a specified set of assumptions.
Their findings are reflected in this statement from one student’s report: "For
all age groups and tax brackets considered, after-tax present worth cash flows from
charitable gift annuities are greater than present worth cash flows from selling stock and
purchasing a 6% bond, indicating a financial advantage of establishing a charitable gift
annuity."
When you consider the substantial tax and financial benefits, along with the joy of
giving, it’s not surprising that Mines has received more than $18 million in life
income gifts over the last five years. For an estimate of benefits tailored to your
circumstances, contact Susan Delahunt, Planned Giving Officer, at (303) 273-3709 or
susan.delahunt@is.mines.edu.
_______________________
1$104 of the $7,000 is tax-free; $3,649 is taxed as
capital gain.
2The entire $4,800 is taxed as ordinary income.
3Based on IRS discount rate of 6.2%.
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