For the Tax Peeps: I owe my aunt money and want to make a charitable donation, and want to do it with stock.?

Question

The stock has appreciated $80 since I bought it. Will I have to include income if I transfer the stock instead of paying cash?

Answer 1

You owe your aunt money. Pay her back.

If you give her stock as a repayment then the fair market value of the stock (FMV) is what you say is the repayment of the loan.

Her basis in the stock would be the same as her basis in the loan. She would have no gain or loss. You would realize gain or loss because there would be an exchange. You received relief of debt in exchange for giving the stock. This is taxable income to you, not her. There is no gift to her because she had a receivable of $xx and got stock of $xx, both of wich is worth the same.

What you mean by charitable donation I do not know, your aunt is not a charity, unless she is the Red Cross.

Answer 2

A couple of questions/clarifications before I can answer this thoroughly. Are you giving the money to a charity in lieu of giving it to your aunt? If so, the fact that you owe her money is irrelevant, and you can deduct the contribution normally. If you are wanting to call it a charitable donation because your aunt has a low income, this unfortunately doesn't count as a charitable donation. This would be the same as paying her cash. You would technically be "selling" the stock to her as far as the IRS is concerned. You'll pay tax on what you "sell" minus what you paid for the stock and any fees associated with it's sale. A charitable donation must be given to an organization that has a 501(c) or 501(c)(3) classification from the IRS. The organization will be able to provide you with this information.
That being said, the way the deduction would be reported (assuming it is a legal deductionas stated earlier) is as follows: if the donated stock has been held less than one year, you can deduct only the cost of the stock, not what it is worth now. If the stock was held at least 12 months and one day, you can deduct the Fair Market Value of the stock.
For example: IF you purchased 100 shares of XYZ stock on Jan 1 2005, for $1 per share ($100 total), then gave it to your church on Feb 3, 2006, when it was worth $3 per share, you would be able to take a $300 deduction on your Schedule A.
If, however, you purchased the same shares, and gave them to your church on Dec 1 2005, when the stock was worth $5 per share, you would only be allowed the $100 deduction since the stock had not been held long enough.
Be aware that contributions of more than $500 require the completion of Form 8283, Noncash Charitable Contributions (stock is considered noncash). You must report the name and address of the organization, as well as the method used to establish the value of the stock (easy enough, since they publish it daily).
If you need more help on this one, let me know. I'll be more than happy to do what I can :)