Read on Twitter
deleted a tweet about this that was imprecise, the point is that this observation is quite something: https://twitter.com/NicDuquette/status/1385308636176551939">https://twitter.com/NicDuquet...
Under a 40% top federal marginal capital gains rate and 40% top federal income tax rate with 13% top state rates for each, a taxpayer in the top marginal bracket *gains post-tax money* by donating unrealized capital gains to charity instead of realizing the gain:
(deductions for charity are capped at 60% of individual annual adjusted gross income, but the mathematical relationship holds as income increases)
(should also say here that up to $10,000 of state taxes are deductible for federal income taxes, which should be tiny in the context of a taxpayer in the top bracket)
additional note re: limitations on the amount of the charitable deduction: https://twitter.com/LeightonLiles/status/1386840707692965890?s=20">https://twitter.com/LeightonL...
As a couple of people have pointed out, this example is one where the basis on the asset is 0. The higher the basis, the less capital gains tax there is to pay and the more I would have paid to acquire the asset, so to achieve true gain of money the basis would have to be small
The person best positioned to do this, especially in California, as Nic Duquette points out, is a unicorn startup founder, who can basically go all-out on this.
My preferred policy response is to further restrict the cap on the charitable deduction, esp. on unrealized assets
My preferred policy response is to further restrict the cap on the charitable deduction, esp. on unrealized assets
I wrote this thread up a bit more formally. Under President Biden& #39;s plan, there will be a loophole limited to very rich people in high-tax states to *increase* their wealth via charitable donations of appreciated assets instead of cashing those assets in: https://agranato.medium.com/when-donating-to-charity-makes-the-rich-richer-a-loophole-in-raising-capital-gains-taxes-bdfaff1b77b0">https://agranato.medium.com/when-dona...
