What does the fair market value determine for donated stock to a charity?

The fair market value of donated stock determines the amount that can be deducted for tax purposes. When an individual donates appreciated stock to a qualified charitable organization, they can generally deduct the fair market value of the stock on the date of the donation. This is beneficial because it allows the donor to avoid paying capital gains tax on the appreciation while also providing a deduction that can offset taxable income.

For example, if a donor purchased stock for $1,000 and it has appreciated to $5,000 by the time of the donation, the donor can deduct the $5,000 fair market value rather than the original purchase price. This deduction can significantly benefit the donor's overall tax situation, allowing them to maximize both their charitable giving and tax efficiency.

Other options do not capture this fundamental tax benefit related to charitable donations. The basis for tax return filing, net gain for income tax, and realized investment loss pertain to different aspects of tax implications surrounding stock ownership and sales rather than directly applying to the deduction from charitable contributions.