All giving should be from the heart, but use your mind to reduce your cost.

If you have any asset that has appreciated in value and you have owned it longer than six months you can give it to the NAMI North Carolina 2000-01 Annual Fund and realize significant benefits. You can give appreciated stock, real estate, a car, a coin collection, a work of art, an antique, a piece of jewelry, or anything of value that can be sold.

If you sell an appreciated asset you must pay a 20% tax on the difference between the asset’s cost and what you sell it for. You keep 80%.

If you give the appreciated asset to the Annual Fund, you do not have to pay the 20% capital gains tax, AND you can deduct the total current value of the asset from your current taxable income (up to 30% of Adjusted Gross Income in any one year and the gift deduction can be carried forward for 5 years). Depending on your tax bracket, giving an appreciated asset can save you a lot of money and greatly reduce the cost of your gift.

Let’s look at an example: John and Mary Stewart have made a generous $10,000 pledge to the Annual Fund. They had planned to pay the pledge with a $2,000 payment each year for five years and deduct the full amount from their taxable income each year. Since their marginal income tax rate is 39.6%, they would receive $792 in a refund each year for a 5-year total of $3,960. The net cost of the gift would be $10,000 – $3,960 = $6,040.

But the Stewarts also own stock they bought ten years ago for $10 a share. Today the stock is worth $100 a share. Since they own a lot of the stock they have decided to sell some of it and use some of the proceeds to pay their pledge. Their financial advisor, however, suggested that they simply give $10,000 of the stock to the Annual Fund to pay their pledge. Then he explained the benefits.

First, they receive the same tax deduction whether they give $10,000 in cash or in stock worth $10,000.

Second, however, the Stewarts avoid a capital gains tax by giving the stock rather than selling it. If they sell the stock, they have realized a $9,000 capital gain on the increased value, from $10 per share to $100 per share. At a 20% capital gains tax rate, the Stewarts have incurred a tax obligation of 20% of $9,000 = $1,800.

By combining these tax advantages, the Stewarts actually realize a net gain of $2,960 – their tax refund minus the cost of their original investment. Their net gain is not as great as a simple sale of the stock, but the strategy of giving the stock (not cash) to NAMI has turned a cash outlay they were already committed to making into income. The difference between the income they are foregoing ($7,200) and net gain realized on the gift ($2,960) is $4,240 – well below the net cost of $6,040 they were prepared to donate.

For the Stewarts the choice was easy, once they understood the benefit. Instead of giving cash, they gave stock, but because of the size of the benefit they actually decided to give $20,000 worth of the stock with a difference of only $8,480 ($4,240 x 2), still significantly under the $10,000 in cash they had originally decided to pledge.

John and Mary Stewart were very happy that they were able to make an even larger gift by careful planning. Please think carefully about how you could plan your gift to the 2000-01 Annual Fund for greater benefit to you and to NAMI North Carolina.