Appreciated Assets: A Gifting Strategy for High-Income Earners

Have you ever considered the benefits of gifting appreciated assets?

As a high-income earner, you may have accumulated investments or properties that have significantly increased in value. But what if there was a way to share that wealth with loved ones or charitable organizations while also optimizing your tax situation?

Below, we'll explore what appreciated assets are, the reasons to consider gifting them, and the important tax implications to keep in mind.

What Are Appreciated Assets?

The appreciation of assets involves investments or properties that have increased in value since you acquired them. Common examples include:

• Stocks
• Bonds
• Real estate
• Artwork
• Businesses

For instance, if you purchased 1,000 shares of stock at $2 per share and they're now worth $200 per share, you have an appreciated asset with significant gains.

Why Gift Appreciated Assets?

Gifting appreciated assets can be a win-win situation for both you and the recipient. Here are some key reasons to consider this strategy:

• Tax Efficiency: By gifting appreciable assets instead of selling them and gifting cash, you can avoid paying capital gains tax on the appreciation.
• Estate Planning: Gifting appreciated assets can help reduce the size of your taxable estate, potentially lowering estate taxes for your heirs.
• Charitable Giving: Donating an appreciated asset to charity can provide you with a tax deduction while maximizing the value of your gift to the organization.

How to Gift Appreciated Assets

The process of gifting appreciated assets varies depending on the recipient and the type of asset. Here are some common scenarios:

• To Family Members: You can directly transfer ownership of stocks, real estate, or other assets to family members. However, be aware of gift tax limits and potential basis implications.
• To Charity: Many charitable organizations are equipped to accept gifts of appreciated assets. This can be done through direct donation or by using a charitable vehicle like a donor-advised fund.
• To a Trust: Setting up a trust can be an effective way to transfer appreciated assets, especially for estate planning purposes.

Tax Considerations

Gifting appreciated assets comes with several tax implications that high-income earners should carefully consider:

• Capital Gains Tax: By gifting appreciated assets, you can avoid paying capital gains tax on the appreciation. However, the recipient may inherit your cost basis and be responsible for capital gains tax if they sell the asset.
• Gift Tax: Be mindful of annual and lifetime gift tax exemption limits. For 2024, you can gift up to $18,000 per person annually without triggering gift tax reporting.
• Charitable Deductions: When donating appreciated assets to charity, you may be eligible for a tax deduction equal to the fair market value of the asset. This deduction is generally limited to 30% of your adjusted gross income.
• Kiddie Tax: If gifting to young family members, be aware of the "kiddie tax" which may apply to unearned income for children under 18 or full-time students under 24.

Strategic Considerations for Gifting Appreciated Assets

When planning to gift appreciated assets, keep these strategies in mind:

• Timing: Consider market conditions and your personal financial situation when deciding when to gift assets.
• Asset Selection: Choose assets with the highest appreciation to maximize tax benefits.
• Recipient's Situation: Consider the recipient's tax bracket, financial needs, and ability to manage the asset.
• Professional Advice: Consult with a financial advisor or tax professional to ensure your gifting strategy aligns with your overall financial goals.

The Bottom Line

Gifting appreciated assets can be a powerful financial tool for high-income earners. By understanding the process, tax implications, and strategic considerations, you can make informed decisions that benefit both you and your chosen recipients.

Remember, while the potential benefits are significant, the rules surrounding such gifts can be complex. Always consult with qualified professionals before making substantial financial decisions.

If you are interested in learning more about giving appreciated assets and how it works with your specific financial situation, please contact one of our financial planners.

Any discussion of taxes is for general information purposes only, does not purport to be complete or cover every situation, and should not be construed as legal, tax or accounting advice. Clients should confer with their qualified legal, tax and accounting advisors as appropriate.

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