How to Donate Stock With Unrealized Loss
When the current market price of stocks you own is lower than when you purchase it, the result is an unrealized loss. However, as long as the shares have some value, you can still donate them to a tax-exempt organization and claim a charitable deduction on your return. When calculating your deduction, you need to be aware of how the IRS limits the amount you can deduct.
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Instructions
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Find a tax-exempt entity to donate your stock to. The charitable deduction for a stock donation is only available if you make the donation to a tax-exempt entity. If you have a charity or other organization in mind, you can easily verify that it has tax-exempt status by accessing IRS Publication 78. Generally, however, only nonprofit organizations that promote religious, charitable, educational, literary, scientific or humanitarian causes are eligible to receive tax deductible stock donations.
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Use the market price on the date of your donation for your deduction. The maximum deduction you can claim for donating stock with an unrealized loss is the price it trades at on the day you make the donation. This precludes you from claiming a deduction that is equal to your tax basis in the stock, which is your total investment in the shares.
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Obtain a receipt from the tax-exempt organization. You have an obligation to obtain a written receipt from the organization you donate the stock to. In the event the IRS audits your tax return or questions your charitable deduction, it expects you to have documentation readily available. If you fail to produce a receipt when the IRS requests it, this is sufficient grounds for the agency to disallow your entire deduction. At a minimum, your receipt must include the name of the organization, the date of your donation and a description of the stocks, such as the number of shares and the company the stock relates to.
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Report your deduction on Schedule A. Deductions for your charitable contributions are only deductible if you itemize on Schedule A instead of claiming the standard deduction. Therefore, you must assess which deduction will reduce your income tax bill the most. In the event the standard deduction is greater than the total of all expenses you can report on Schedule A, you are better off claiming the standard deduction in lieu of reporting a charitable contribution for your stock donation.
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Tips & Warnings
Instead of donating the stock, you should consider selling your shares and then donating the proceeds to the charity. Since your stocks are investment property, as well as capital assets, you can reduce your capital gains tax with the loss you incur on the sale. In addition, the IRS allows you to deduct up to $3,000 of the loss you realize when it exceeds the amount of capital gains you can offset. In this scenario, the proceeds you donate to charity will provide you with the same charitable deduction as donating the stock.
