Assets to Give

Cash gifts can be made by check or charged to a credit card. Charitable gifts of cash are deductible up to 50% of a donor’s adjusted gross income in the year of the gift with any balance carried forward up to five more years. In valuing any charitable gift for tax purposes, the donor must reduce the gift amount by the fair market value of any goods or services received from the charity.

For a gift of appreciated securities, a donor is entitled to an income tax deduction for the full fair market value of the securities up to 30% of adjusted gross income, with any balance carried forward up to an additional five years. In order for the gift to be fully deductible, the donor must have held the asset for more than one year. The value of the gift is the average of the high and low market prices on the date the securities are transferred to Penn.

The transfer of stock from a donor to Penn is a fairly simple transaction. Morgan Stanley serves as the University’s main brokerage firm. The donor will need to work directly with their broker to initiate a transfer of stock to the University of Pennsylvania [transfer form]. If the donor holds certificates, it is best if those certificates remain unendorsed and the donor completes a separate stock power form authorizing transfer of ownership from the donor to Penn.

Designating Penn as the beneficiary of retirement assets is one of the smartest ways for donors to make a gift to Penn and bypass multiple levels of taxation. Qualified retirement savings are generally subject to federal income tax as they are withdrawn from the plan. Failure to take the required minimum distribution after age 72 results in a 50% tax on the undistributed amount. At death, any remaining account balance is included in the calculation of the gross estate and may be subject to both income and estate taxes. Lastly, a generation-skipping tax may apply to substantial account balances that pass to grandchildren or to other remote generations. These taxes can consume up to 75% of the retirement assets.

Careful planning for the disposition of retirement plan assets can help to avoid undesirable tax costs. Naming Penn as a beneficiary of a retirement plan will reduce the size of a taxable estate and avoid income taxation on those funds. In certain situations, a charitable gift of a retirement account can improve a donor’s overall tax consequences, increase the amounts passing to heirs, and escape income and estate taxes.

There are several ways to structure a gift of real estate, each with its own advantages. For example, some gifts may be set up to provide an income stream for the donor or a donor’s loved one. Real estate gifts can be made in the form of undeveloped property, a personal residence or farm, rental property, or commercial property. The owner of the property may be entitled to an income tax deduction based on the appraised value of the property.

The donor must submit a copy of a qualified appraisal with their income tax return for the year of the gift. Also, IRS Form 8283 must be submitted and signed by Penn acknowledging receipt of the gift. Penn carefully evaluates each potential gift of real estate, and the many ways we can structure a gift to meet your needs, on a case-by-case basis.

Gifts of tangible personal property require more planning than gifts of cash or marketable securities. Tangible personal property, such as artwork, may be given to the University so long as it can be put to a “related use” as defined by the IRS. These items are reviewed for acceptance by the appropriate Penn representative, such as the University Curator.

Donors are required to substantiate value to support any deductions claimed on their tax returns, and special substantiation rules apply to gifts of tangible personal property. Generally, if a claimed deduction for an item or group of similar items of donated property is more than $5,000, a taxpayer seeking a deduction must get a qualified appraisal from a qualified appraiser and attach IRS Form 8283 to his or her tax return. For additional information regarding charitable gifts of tangible personal property, see IRS Publication 526: Charitable Contributions.

Owners of businesses or donors who have substantial interests in privately held stock (C- and S-Corp), limited liability companies, and limited partnership interests may consider using these assets to make a gift to the University. The company stock or interest is donated to Penn, which will likely sell the asset. The owner of the asset may be entitled to an income tax deduction based on the appraised fair market value, thus avoiding capital gains taxes. The donor will have to submit a copy of a qualified appraisal with his/her income tax return for the year of the gift. Also, IRS Form 8283 must be submitted and signed by Penn acknowledging receipt of the gift. Penn carefully evaluates each potential gift of private stock, closely held business interests and other complex assets.