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I will be making an investment in a mutual fund. I would also like to donate some mutual fund holdings to charity. Since the fund holdings have appreciated in value, I need to make sure that I don't jeopardize my tax deduction by making an improper investment at or near the same time of the contribution. What are the restrictions on investments that I need to be aware of?

I'm sure that an investment into the same fund whose partial proceeds were donated to charity would be disqualified. What about a similar fund (what is a similar fund)? What is the waiting period to avoid disqualification?

  • You need to make sure that what is being given to the charity is the mutual fund shares and not the proceeds of selling those shares. In the latter case, you have realized your gains and made a cash donation and so owe tax on the realized gains. Some mutual funds may allow for transfer of shares to another party (or, as a specific case, to charities) while others might not. Check the prospectus of the fund. – Dilip Sarwate Jun 16 '15 at 14:21
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You are confusing the rules regarding Wash Sales with donations.

Any fund held long term, over one year, can be donated, and the donation is the value at the time you donate the shares. You don't pay any gain, as you sold no no shares.

The key is to designate the shares that were held over one year and are currently over the purchase price. Shares held at below cost should be sold and cash donated, else you lose the potential tax write off for that loss.

  • Thank you. I wasn't sure if Wash Sales applied to donations. – Les Jun 16 '15 at 12:39
  • Are you sure about the donation of shares? I just read the April 2015 version of the prospectus for Vanguard's S&P 500 Index fund and can find no mention of donating shares of VFINX or VFIAX or transferring their ownership to a charity or third person; shares are redeemed and the proceeds sent to the designated bank account. At best one can do "Payment to a different person or address. At your request, we can make your redemption check payable, or wire your redemption proceeds, to a different person or send it to a different address." followed by extra steps needed to do this. – Dilip Sarwate Jun 16 '15 at 14:39
  • Shares of mutual funds are gifted all the time. Does this form look good to you? It's to charity. There's another form to give an individual shares. – JTP - Apologise to Monica Jun 16 '15 at 15:00

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