At Greater Houston Community Foundation, we believe in the power of philanthropy to drive positive change in our community. As a donor, you have the opportunity to make a lasting impact by transforming assets, such as stocks, bonds, real estate, or business interests, into vital resources for charitable causes. With our expertise and personalized service, we can help you navigate the complexities of giving and maximize the effectiveness of your donation. Discover how you can unlock the potential of your holding assets to create meaningful change where it’s needed most.

Benefits

Donating privately held assets offers numerous benefits, including potential tax advantages, simplified giving, legacy preservation, and flexibility in choosing assets tailored to your philanthropic goals and financial situation.

How It Works

As your trusted philanthropic partner, Greater Houston Community Foundation is dedicated to supporting your charitable aspirations and maximizing the impact of your generosity. By choosing to donate holding assets through us, you’re not only investing in the betterment of our community but also ensuring a lasting legacy of positive change. Our team is here to guide you every step of the way, providing personalized assistance, expert advice, and unparalleled service. Together, let’s harness the potential of your holding assets to create a brighter future for Greater Houston.

Privately Held Stocks and Other Private Assets

FAQ about privately held assets

Privately held stocks and other illiquid assets make up a significant portion of wealth for many donors, yet these valuable holdings often present unique challenges when it comes to charitable giving. At Greater Houston Community Foundation, we specialize in helping donors transform complex private assets into powerful philanthropic tools that can maximize both tax benefits and community impact.

Whether you’re considering donating stock, partnership interests, or other private investments, our experienced team can guide you through the process of converting these assets into meaningful charitable contributions, while potentially reducing your tax burden and supporting the causes you care about most.

What are examples of private assets?

Private assets are an umbrella asset class that covers a wide range of investments and business interests that are not traded on public exchanges. These illiquid holdings often hold significant value for high-net-worth individuals and business owners, but they can be labor-intensive to liquidate—making them candidates for most charitable giving strategies.

• Business ownership interests include shares in closely held corporations (both S-corps and C-corps), LLC membership interests, and partnership stakes in various business ventures. These assets are particularly common among entrepreneurs and family business owners who have built value over time.
• Investment partnerships like private equity funds, hedge funds, real estate partnerships, and oil and gas ventures are another popular category of private assets. These investments typically have restrictions on transfers and limited liquidity, making charitable donation an essential exit strategy.
• Real estate holdings beyond personal residences, including commercial properties, undeveloped land, rental properties, and real estate investment trusts (REITs) that are not publicly traded, are another major private asset category.
• Intellectual property, like patents, copyrights, trademarks, and royalty interests, can also qualify as private assets suitable for charitable donation, particularly for inventors, authors, and creators who have developed valuable intellectual property portfolios.
• Other specialized assets might include privately held securities, restricted stock options, collectibles with significant value, and various forms of alternative investments that lack readily available public markets.

The Community Foundation has experience accepting and managing diverse private asset types, working with specialized appraisers and advisors to ensure proper valuation and compliance with all regulatory requirements.

Can you donate private stock?

Yes, you can donate privately held stock to qualified charitable organizations like Greater Houston Community Foundation. Private stock donations can include shares in closely held corporations, limited liability companies, partnerships, and other business entities that are not publicly traded on major exchanges.

Donating privately held stock can be particularly advantageous for business owners who have accumulated significant value in their companies over time. Unlike public stock transactions, private stock donations require more careful planning and valuation processes, but they can offer substantial tax benefits while allowing you to maintain involvement in your business operations.

The Community Foundation has extensive experience working with donors to accept various forms of private equity, including S-corporation stock, C-corporation shares, and limited partnership interests. We work closely with your trusted professional advisors to ensure all legal and tax requirements are met throughout the donation process.

Can you donate stock to avoid capital gains tax?

Donating appreciated privately held stock can help you avoid capital gains taxes that would otherwise be owed if you sold the assets directly. When you donate business interests that have appreciated in value, you typically receive a charitable deduction based on the fair market value while avoiding the capital gains tax on the appreciation.

Donating to charity can be a particularly powerful financial strategy for private assets that have grown substantially over time. For example, if you purchased stock in your company years ago for $50,000 and it’s now worth $500,000, selling it would trigger significant capital gains taxes. However, donating the stock directly allows you to potentially deduct the full $500,000 while circumventing capital gains on the $450,000 appreciation.

The tax savings from mitigated capital gains, combined with the charitable deduction, can make donating appreciated private stock more financially beneficial than selling the stock and donating the after-tax proceeds, but doing so requires careful planning with tax professionals to ensure compliance with IRS regulations.

IRS rules for donating stock to charity

The IRS has many specific requirements and strict limitations for private stock donations that donors must follow to qualify for charitable deductions:

• Qualified appraisal requirement: Donations of private stock worth more than $5,000 require a qualified appraisal by an independent, certified appraiser. The appraisal must be completed no earlier than 60 days before the donation and no later than the tax filing deadline.
• Form 8283 filing: Donors must file Form 8283 (noncash charitable contributions) with their tax return for donations exceeding $500. For donations over $5,000, this form must include the qualified appraisal summary.
• Holding period: To deduct fair market value, you must have held the stock for more than one year. Stock held for one year or less is limited to cost basis deduction.
• Related party restrictions: Special rules apply when donating to charities controlled by the donor or related parties. These transactions face additional scrutiny and may have limited deductibility.
• Substantiation requirements: Proper documentation from the receiving charity is required, including acknowledgment of the gift and confirmation that no goods or services were provided in exchange.

Understanding how to donate shares to charity while complying with these rules is essential for maximizing your tax benefits and ensuring your donation is properly documented.

How do you value privately held stocks to determine tax deduction?

Valuing privately held stocks requires professional appraisal since there’s no public market to establish fair market value. The IRS requires qualified appraisals for donations of private stock and other non-publicly traded assets to determine the appropriate charitable deduction amount.

Several valuation methods may be used depending on the type of business and available financial information:

• Asset-based approach values the company based on its underlying assets minus liabilities, often used for holding companies or asset-heavy businesses.
• Income approach determines value based on the company’s earning capacity and projected cash flows, commonly used for operating businesses with consistent revenue streams.
• Market approach compares the private company to similar businesses that have sold recently or are publicly traded, adjusted for differences in size, growth, and other factors.

The valuation process typically involves reviewing financial statements, business operations, market conditions, and other relevant factors. Community foundations like Greater Houston Community Foundation work with qualified appraisers familiar with various charitable gift types to help ensure accurate valuations that meet IRS requirements.

What information is required in a qualified appraisal?

• Property description: A detailed description of the stock being valued
• Appraisal date: The date the appraisal was prepared
• Fair market value: The appraiser’s determination of the stock’s fair market value
• Appraisal method: The valuation methods used to determine the fair market value
• Statement for income tax purposes: The appraisal must explicitly state that it was prepared for “income tax purposes”
• Appraiser’s information: The appraiser’s name, address, and taxpayer identification number (if applicable)
• Appraiser’s declaration: A specific declaration from the appraiser, as required by IRS regulations

How much of a stock donation is tax-deductible?

The tax deductibility of private stock donations depends on several factors, including how long you’ve held the stock, your adjusted gross income, and the type of charitable organization receiving the gift.

For private stock held longer than one year, you can typically deduct the full fair market value up to 30% of your adjusted gross income when donating to public charities like Greater Houston Community Foundation. If your donation exceeds this limit, you can carry forward the excess deduction for up to five additional years.

For stock held one year or less, your deduction is generally limited to your cost basis rather than the current fair market value. This is why timing becomes crucial in charitable giving financial planning involving private assets.

The Community Foundation can work with your tax advisors to help structure your donations to maximize your charitable donation tax deduction while staying within IRS limits. Strategic timing and multi-year giving plans can help you take full advantage of available deductions.

Transform your privately held assets with the Community Foundation

Greater Houston Community Foundation provides the expertise and infrastructure needed to transform your privately held stocks and other private assets into lasting charitable impact. Our team understands the complexities inherent in private asset donations and works closely with your professional advisors to encourage smooth transactions that maximize tax benefits and help you reach your philanthropic goals.

We offer flexible giving options, including donor advised funds that allow you to make an immediate charitable deduction while taking time to decide how to distribute the funds to specific charitable causes, which can be particularly valuable for private asset donations in which you need to spread your giving over multiple years.

Whether you’re planning a business succession, managing concentrated wealth positions, or simply looking to diversify your holdings while supporting your community, the Community Foundation can help you explore how private asset donations fit into your overall philanthropic strategy.

Call us at 713-333-2210 or reach out directly to get started.