Janice, age 75, and her husband, Joe (also age 75), want to increase their retirement income and to support the ministry of Wheaton College through a $10,000 charitable gift annuity.
Based upon their ages, Janice and Joe are eligible for a Wheaton College current gift annuity that pays an annuity rate of 5% or $500 each year for as long as either of them are living. Of that $500 annuity amount, $96.50 is treated as ordinary income and $403.50 as tax-free income (until the year 2027). Janice and Joe can also claim a current Federal charitable income tax deduction in the amount of $3,383.50.
Instead of using cash to fund their gift annuity, Janice and Joe could fund their gift annuity with appreciated stock and receive additional tax benefits. By funding their gift annuity with stock that has appreciated in value and that has been owned for longer than one year, Janice and Joe significantly reduce the federal (15%) and Illinois state (5%) capital gains taxes that they would have incurred had they sold the stock themselves.