— R.V., Bedford Hills, N.Y.
Answer:With stock prices up sharply, many taxpayers are donating shares they've owned for more than a year and that have surged in value. Donors typically can deduct the stock's full market value, and don't owe a capital-gains tax.
But if you donate stock you've owned for a year or less, you typically can deduct only your cost, not the market value.
Also, remember you can't deduct anything unless your donations go to a qualified charitable organization—and unless you itemize your deductions.Nearly two-thirds of all individual income-tax returns claim the standard deduction each year, instead of itemizing.
Our reader asks how to calculate the value of the donation. First, let's assume there is an active market for the contributed stock, and that the stock traded on the day of the gift.
In that case, "the mean between the highest and lowest quoted selling prices on the date of the contribution" will determine the value of the contribution, said Martin Hall, a partner at the law firm Ropes & Gray LLP, and Carolyn Osteen, a retired partner at Ropes & Gray and a consultant to the firm, in their book on tax aspects of charitable giving.
For example, the Internal Revenue Service says in Publication 561, "if the highest selling price for a share was $11, and the lowest $9, the average price is $10."
And if there were no sales on the gift date? If there were sales "within a reasonable period before and after the valuation date," you take the average of the highest and lowest prices "on the nearest date before and on the nearest date after the valuation date," the IRS says. "Then you weight these averages in inverse order by the respective number of trading days between the selling dates and the valuation date."
P.S.: Don't donate stock that has gone down in value. Instead, sell those losers. Those "realized" capital losses can be valuable for tax purposes.
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