As donor advised funds (DAFs) increase in popularity, more financial advisors are working hard to help their clients understand what these tools are and how they can work. The most common questions we get from advisors new to The Signatry and DAFs revolve around what assets donors can give and what benefits are associated with each gift type.
What can be given to a DAF?
1. Cash Gifts
Gifts of cash are deductible up to 50% to 60% of AGI, depending on your clients other annual giving. If the donor’s total gifts exceed the IRS’s AGI limitations, the excess may be carried forward for federal income tax purposes for up to five additional years.
2. Public and Closely Held Stock Gifts
By donating publicly held stock held for more than a year, the donor can avoid paying capital gains tax on the stock’s long-term increase in value. The donor can also receive an income tax deduction for the fair-market value (FMV) of the stock on the date of the gift, up to 30% of AGI. The FMV of a publicly held stock gift is the average of the high and the low price of the stock on the day the gift is completed.
Donating closely held stock can also allow the donor to avoid paying capital gains tax on the stock’s increase in value. Similarly, a gift of closely held stock can be deductible for FMV. However, this FMV must be determined by an independent appraiser, and there are factors that may bring down your client’s charitable contribution deduction during this process.
In both cases, the gifted stock will not be subject to estate tax upon the donor’s death.
3. Real Estate Gifts
Similarly, a donor can take a charitable deduction of the FMV of any real property donated outright to a DAF. The deduction is capped at 30% of the donor’s AGI; if the qualified appraisal is greater than the donor can use in one year, the excess can be carried forward as a charitable deduction over the next five years. The donor also avoids capital gains taxes on the profit that would have been taxable if the property had been sold. The gifted asset will not be subject to estate tax at the time of the donor’s death.
4. Other Properties
Any item or other form of property that your client could donate to any charity, they may also donate into a DAF. The Signatry has accepted many different types of gifts over the years. From antiques to art to intellectual property, our team is always open to discuss unique situations. The income tax deductions your client may receive depend on the nature of the gift. Please feel free to reach out to our team with more specific questions.
DAFs are powerful, flexible tools for carrying out your client’s current generosity goals and for expanding their charitable vision. Our team is here to answer questions about any type of gift your client may have in mind.