Americans have long had a reputation for charity. In the latest Charities Aid Foundation World Giving Index, the United States ranked first, making it the most generous country in the world for the last decade. But while total charitable dollars in the U.S. are increasing, individual contributions are dropping. It seems that corporations and foundations created by wealthy families are compensating.

The 2017 tax code overhaul might have had something to do with this. Charitable deductions claimed from the IRS dropped by $54 billion. The drop in charitable donations wasn’t as significant, though, which indicates taxpayers weren’t itemizing their philanthropy.

The current economic pressures resulting from the COVID-19 pandemic are anticipated to impact charities hugely. Philanthropic organizations will have to “do more with less” as government stimuli come to an end and the effects of unemployment manifest themselves. For those still in a position to give, it’s more important than ever to structure donations tax effectively. Appreciating non-cash assets offer an excellent opportunity to maximize benefits.

Most taxpayers are aware of several common deductions that they can claim, including for donations of cash to qualifying organizations. But not everyone knows that non-cash donations also qualify for a deduction. And where they are appreciating in nature, they can be even more tax efficient under certain circumstances.

Appreciating non-cash assets are assets that increase in value, such as securities, real estate, or business interests. As a general rule, if you’ve owned them for more than a year, you can claim the fair market value of the asset at the time of your donation as a charitable deduction.

Additionally, you are not required to pay capital gains tax on the appreciation value. This saving on capital gains can no doubt be put to good use by the charity of your choice. But you may need to do a bit of planning to realize the full benefit of appreciating non-cash assets.

Many charities do not have the resources or expertise to deal with non-cash assets. Donor-advised funds (DAFs) are 501(c)(3) public charities specializing in processing and liquidating non-cash assets. They are handy because donors may claim the market value of their donation to the DAF in the year they’re made. But, they can specify the beneficiaries at their convenience - even years later. At the time the funds are liquidated, no capital gains tax is attributable to the donor.

Non-cash donations can be complex and are irrevocable. Therefore, taxpayers contemplating them should consult a tax adviser well in advance for the requisite planning to be undertaken. The following basic guidelines apply to these different asset types:

- Publicly traded securities such as stocks and mutual funds must be owned for more than a year and transferred directly to the DAF. They are deductible at market value and won’t attract capital gains tax.

- Real estate usually requires a qualified appraisal to determine fair market value for a deduction. Ideally, the property should be marketable, easily liquidated, and debt free. And the DAF or charity must be left to handle the sale; if the IRS regards it as pre-arranged, the capital gains relief might be denied.

- Private business interests in C-corps, S-corps, LPs, and LLCs also require a qualified appraisal to determine market value, which must take into account marketability and minority interests. Any potential sale transaction cannot have proceeded substantially if the capital gains benefit is sought.

DAFs and charities may be subject to unrelated business income tax (UBIT) on share sales and income generated during their ownership. They can use the sale proceeds to pay the tax and may escrow a portion of the proceeds for the necessary years to match the IRS’s “look-back” period.

- Private equity fund interests similarly require a qualified appraisal to determine market value for a deduction. The interests must be saleable - minority interests tend to be illiquid and subject to severe discounting. Charities also won’t assume any associated liability, so donors should donate adequate liquidated assets to cover DAF grant recommendations and any of the private equity fund’s open commitments, UBIT, or other liabilities.

- Cryptocurrency isn’t regarded as cash by the IRS, and its transactions are governed by IRS Notice 2014-21. Deduction limits are based on adjusted gross income (AGI) with a five-year carryover. And they depend on how long the asset was held and whether it was held as an investment or an ordinary income asset.

- Fine art and collectibles deductions are at the lesser of cost basis or fair market value.

- Executives’ restricted stock in public corporations, IPO stock, and equity compensation awards may theoretically be donated, but that will depend on the restrictions they are subject to by the issuer. The restrictions will also have an impact on the fair market valuation of the assets.