A Great Way to Change Your Portfolio

A few months ago, I noted that I had investments in mutual funds (that I made several years ago) that I wanted to get out of but didn't want to take the big capital gains hit that was associated with selling them. Then a reader commented that I should give the funds away instead of selling them. What a great idea! So that's what I've been doing this year -- instead of giving cash, I've been giving appreciated shares in funds I no longer want. I then take the cash I would have given and invest it in funds I do want to own (index funds.) The charity gets a donation, I get to change around my portfolio, and I avoid the capital gains taxes. (FYI, to see how this works, check out Save on Taxes and Give a Bigger Gift by Donating Securities Instead of Cash.)

I recently ran into another piece from Vanguard that listed four ways to give gifts and save on taxes at the same time. Of course, giving appreciated securities was on the list. Here's what they had to say about it:

Another way to reap tax benefits while giving is to donate appreciated securities. Donating stocks, bonds, or mutual fund shares generally lets you take a tax deduction for the full market value of the investment and avoid paying tax on capital gains. To qualify, you must have owned the security for more than a year and the deduction cannot be more than 30% of your adjusted gross income (AGI) in any given year. (If the deduction would be more than 30% of your AGI, you can spread it out for up to five years.)

Good stuff!

I'll be employing this method for the next couple years as I look to rid myself of some funds purchased a long, long time ago and consolidate more and more of my holdings into index funds.

Comments

[Pinyo]

This is a great way to avoid paying capital gains tax and get tax deduction instead -- a double win in my book. Unfortunately, the organization I usually give to does not accept this form of donation, so I will have to look around for other organizations that will.

Any suggestion?