
Turning Market Losses into Tax Wins with Charitable Donations
Those who sold stocks or other securities during the recent market downturns have an option to do good while boosting tax benefits, says a recent article from Barron’s, “You Sold at a Loss. How to Cut Your Tax Bill and Help Others.” Charities can use the help right now, and you can ramp up your tax loss harvesting.
How could it work? Let’s say you owned 10,000 shares of company stock originally bought for $100 a share, costing $1 million, and the price fell to $70 a share, then you sold it for $700,000. You’ve realized a $300,000 loss you can use to offset future gains and avoid taxes. Suppose you are able to donate the $700,000 directly to a charity or contribute it to a Donor Advised Fund by December 31 and itemize deductions on your tax return. In that case, you’ll win twice with tax-loss harvesting and a charitable donation for the current year.
The key is to sell the asset first, then donate the proceeds to charity. People are usually advised to gift the asset directly to the charity to avoid capital gains and receive a deduction. However, in this strategy, the opposite is done. Take the loss yourself and avoid taxes on future gains.
If you gift assets with losses directly to a charity, you’ll still get the itemized deduction. However, when the charity sells the asset, the realized losses don’t flow back to you. Donating the asset first allows you to write off 60% of the value of the cash donation from your AGI, while gifts of appreciated stocks are capped at 30% of the donor’s Adjusted Gross Income.
A Charitable Lead Trust or Charitable Remainder Trust could also help if you’re sitting on cash from selling stocks or other assets and looking for estate planning ideas. These trusts are good tools for people who are charitably minded and want to get assets out of their taxable estate.
The Charitable Lead Trust allows the charity to receive annual payments over a specified term of years or until the donor’s death. At the end of the term, remaining assets are distributed to beneficiaries. In a Charitable Remainder Trust, the donor or beneficiaries receive an income stream for a specified term and any remaining assets are distributed to the charity.
If you use an undervalued asset in a Charitable Lead Trust, you’ll increase the impact for both the charity and beneficiaries. In a Charitable Lead Annuity Trust, the value of your donation will be discounted, since the charity receives the income over the term of the trust.
The charity receives funding, and heirs benefit from any rebound in the depreciated asset’s value and growth, while the estate avoids paying gift taxes.
Talk with an experienced estate planning attorney to discuss how these methods may burnish your legacy by minimizing taxes, thereby increasing inheritance and building a family tradition of supporting those less fortunate.
Reference: Barron’s (June 1, 2025) “You Sold at a Loss. How to Cut Your Tax Bill and Help Others”