Hi Jim,

The “$100 + $100” refers to that, in this situation, the taxpayer has $100 of income (from a job, or some other source of income) as well as an asset that has appreciated by $100 (and therefore contains $100 in capital gain). If T were to sell the asset for cash, T would pay capital gains tax on the gain accrued to that asset. Separately, because of the charitable deduction, T would also get to reduce income by the fair market value of the asset donated, so if T decides to donate the asset instead of selling it, T would simultaneously not have to pay the capital gains tax and get to take a deduction. To your last point, if T is in the top marginal tax bracket, T will face (under President Biden’s current proposal) a 39.6% federal income tax rate as well as a 13% income tax rate on that $100 of income. Therefore, by reducing income by $100 by donating the appreciated asset, T’s tax savings from the charitable deduction alone will be $39.6+$13=$52.6 (a 52.6% rate). So a $100 deduction does reduce T’s income by about $53. Because the total capital gains rate T would face under President Biden’s current proposal is over 50% when you look at federal and California state rates combined, T will have more post-tax money (again, because of the separate but combined impact of the avoidance of capital gains taxation and deduction from income due to the charitable deduction) if T donates the highly appreciated asset with 0 basis than if T sells the asset for cash.

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