Many people are aware of the benefits of gifting publicly-traded securities – receive a tax-deduction on the current value and avoid paying capital gains tax. Yeah!

What about privately held stock? Is it possible to gift in the same way? In short, the answer is a resounding, “Yes.”

Just recently, The San Diego Foundation worked with two separate donors who gifted shares of privately held companies to their advised funds at The San Diego Foundation.

The benefit to the donors is that, similar to gifting public securities, they receive a deduction based on the current value, versus the original value. For many private business owners, the cost basis in a private company is low, so there is potential for significant tax benefit.

How to Gift Privately-Held Stock

The process is simple. This breakdown below can serve as a useful cheat sheet when preparing to give.

The Foundation needs:

  • A description of the asset
  • The number of units/shares being gifted
  • The value and information regarding any debt associated with the donated gift

If the privately held interest was a corporation, The Foundation also needs:

  • Information about the type of corporation
  • Names and titles of the principals
  • Percentage ownership represented by the donated shares
  • Debts of the corporation linked to the donated shares
  • Financial statements and recent financial statements

An independent valuation to verify the worth of the privately held stock is also important.

In the recent cases here at The Foundation, we were able to work with the donor on liquidity options and timing. The Foundation’s Finance team conducted an evaluation and developed an IRS-approved receipt for the donors.

There are some excess business holding rules that apply to gifting to donor-advised funds, which can be found here from the Council on Foundations. If this is an issue, the donor may always gift to a broad purpose, scholarship or fund, where these rules do not apply.

Interested in learning more about how to gift privately-held stock? Contact the Charitable Giving Team at (619) 235-2300 or to learn more.

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