Advanced Tax Strategies for Private Foundations

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Categories: Advisors

Search Topics: Foundation Investments Foundation Tax Strategies

1. Donate qualified appreciated stock to the foundation: The personal charitable deduction for donating appreciated securities or assets to a private foundation is typically limited to the donor’s cost basis. However, an exception exists for donations of “qualified appreciated stock,” allowing for a fair-market-value deduction. Qualified appreciated stock is defined generally as publicly traded stock held for at least one year that qualifies for long-term capital gains treatment and is not subject to restrictions at the time of donation. This exception does not apply to any other type of noncash property, such as bonds, options or partnership interests.

2. Step up your cost basis in capital assets: A private foundation is unable to carry forward capital losses to future years. Rather than allowing losses to disappear forever, a foundation can sell its appreciated capital assets and offset the resulting capital gains with the unused capital losses. Further, you may repurchase the capital asset within 30 days since the “wash sale” rules apply only to capital losses, not capital gains. This strategy has the effect of providing stepped up basis for appreciated capital assets. Since the private foundation excise tax does not differ between short- and long-term gains, there is no downside to restarting the holding period.

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