For short-term held assets (less than a year), the IRS limits your deduction to the fair market value of the asset minus the capital gain. This effectively limits your deduction to your purchase price. In such cases, it might be more beneficial to sell the asset and donate the after-tax proceeds.
However, for long-term held assets (more than a year), the benefits of donation are significant. The IRS considers the donation value to be the fair market value of the asset at the time of donation, not the value you paid for it. If you itemize your tax deductions, this amount can be substantial.
For instance, consider a couple that purchased 500 shares of Apple stock in January 2021 for $130 per share and decided to sell it in February 2022 for $175 per share. They would owe a total of $5,468 in taxes on a reported gain of $22,500, leaving them with an after-tax gain of $17,032. However, if they donated the proceeds of the sale to a DAF like Daffy, they could potentially save on their tax bill.
Daffy is a great option for a DAF as it accepts a wide range of assets, including crypto. Donating crypto can not only be a generous act, but also a tremendous tax advantage. If you've held your crypto for over a year and have a gain, the benefits of donation are significant.
In conclusion, donating appreciated assets to a DAF like Daffy can be a smart tax strategy, especially for long-term held assets. It allows you to support the causes you care about while also maximizing your tax benefits.
Please note that the information contained on this page is for educational purposes only and should not be considered tax advice. Any calculations are intended to be illustrative and do not reflect all of the potential complexities of individual tax returns. To assess your specific tax situation, please consult with a tax professional.