Overview
Gifting appreciated securities (stocks, ETFs, mutual funds, or other investments that are worth more than you paid) is a common, tax-efficient way to support charities and reduce your tax bill. Instead of selling the asset, paying capital gains tax, and donating cash, you transfer the security directly to a qualified charity. The charity can sell the asset tax-free; you usually receive a charitable contribution deduction for the full fair market value (FMV) if you meet holding-period and other IRS rules. This strategy preserves more value for the charity and often improves your after-tax benefit.
Sources: IRS Publication 526 and IRS guidance on charitable giving (see https://www.irs.gov/publications/p526 and https://www.irs.gov/newsroom/giving-to-charity-what-you-need-to-know).
In my practice as a CPA, I’ve recommended this approach for clients who hold long-term winners they no longer want, particularly when they plan to give to public charities. It can change a $30,000 donation into a much more efficient tax outcome than selling first and donating cash.
Who benefits and when to use this strategy
- Donors who own appreciated, long-term securities (held more than one year). Long-term treatment is key: if the holding period is one year or less, the deduction is typically limited to your cost basis, not FMV.
- Charitable organizations that are able to accept and promptly sell donated securities.
- Donors who itemize deductions and have sufficient AGI room under IRS limits.
Note: Gifts to individuals (family members or friends) do not trigger the same tax treatment. A gift to a person generally carries the donor’s basis forward to the recipient and doesn’t produce a charitable deduction. Also, large gifts to individuals may raise gift tax or filing requirements — consult a tax advisor.
Step-by-step: How to gift appreciated securities
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Confirm the recipient qualifies. For the full tax benefits, the recipient must be a qualified public charity (501(c)(3) public charity, certain donor-advised funds, private foundations have different limits). Confirm the charity can accept transfers of publicly traded securities.
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Check the holding period and basis. Verify you owned the security for more than one year (for long-term capital gain treatment) and know your adjusted basis (purchase price plus reinvested dividends, commissions, and adjustments).
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Contact your broker. Most brokerages support an in-kind transfer via DTC/ACATS to the charity’s brokerage account. The charity will typically provide account and DTC instructions. Avoid selling first — transfer the shares in-kind.
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Initiate the transfer. Provide your broker with the charity’s account details (often a DTC number and account name) and the number of shares. Ask how they report the date and time of transfer and request a transfer confirmation.
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Get written acknowledgment. The charity must provide a contemporaneous written acknowledgement for any noncash gifts (and for any single donation over $250) that includes a description of the property and a statement of whether goods or services were provided in return. Keep this for tax records.
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Complete IRS reporting on tax return. Noncash gifts are reported on Form 8283 if total value of noncash donations exceeds $5,000 for the tax year. For donated publicly traded securities, reporting requirements are simpler than for unique, hard-to-value property, but you still must follow Form 8283 instructions and retain brokerage records.
Detailed IRS instructions: Form 8283 and Publication 561 (Determining the Value of Donated Property) explain necessary substantiation and appraisal rules (https://www.irs.gov/forms-pubs/about-form-8283 and https://www.irs.gov/publications/p561).
Tax rules and limits you must know
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Long-term requirement: To deduct FMV of appreciated property, you generally must have owned it for more than one year. Short-term holdings generally limit your deduction to your basis.
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Deduction limits: For donations of appreciated long-term capital gain property to public charities (including many donor-advised funds), the deduction is generally limited to 30% of your adjusted gross income (AGI). Excess amounts can usually be carried forward for up to five additional tax years. Cash gifts typically have a higher AGI limit (historically 50% or 60% depending on gift type and charity).
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Capital gains avoidance: If the gift is made directly to a qualified public charity, you usually avoid paying capital gains taxes on the appreciation — the charity, as a tax-exempt entity, can sell the securities without paying tax.
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Reporting thresholds: Any noncash gift over $250 requires written acknowledgement from the charity. Noncash gifts over $5,000 require Form 8283; for gifts valued over $50,000 an appraisal by a qualified appraiser may be required (see Publication 561). Publicly traded securities are often easier to value because market prices are available.
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Donor-Advised Funds (DAFs): Gifts to DAFs are treated as gifts to public charities for deduction limits; however, control remains in the DAF. Deduction limits for appreciated securities to a DAF generally follow the 30% AGI rule.
Always check the current IRS publications for the most up-to-date limits and special rules. The basic guidance is in IRS Publication 526 and Publication 561.
Practical examples
Example 1 — Direct gift to charity (simple and common):
You bought shares five years ago for $10,000. Today the shares are worth $30,000. You transfer the shares directly to a qualifying public charity:
- You avoid capital gains tax on the $20,000 gain.
- You can typically deduct the full $30,000 FMV (subject to the 30% AGI limit for appreciated property).
- The charity sells the shares and uses the proceeds tax-free.
Example 2 — Selling first (less efficient):
If you sold the $30,000 position first and then donated the $30,000 cash, you would pay capital gains tax on the $20,000 gain before donating. That tax reduces the after-tax amount the charity receives, making the gift less efficient.
Example 3 — Gifting to a family member (different tax treatment):
If instead you gift the $30,000 stock to a relative, the recipient takes your basis (typically $10,000). If they later sell at $30,000, they will owe capital gains tax on the $20,000 gain (no charitable deduction for you).
Special situations and strategies
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Donor-Advised Funds (DAFs): Use a DAF when you want an immediate tax deduction but plan your grantmaking over time. Donating appreciated securities to a DAF provides the same FMV benefit (subject to limits) and lets you decide which charities to fund later.
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Charitable Remainder Trusts (CRTs) and Charitable Gift Annuities (CGAs): These vehicles handle highly appreciated or concentrated positions, provide income to you or beneficiaries, and defer or spread tax consequences. They require more setup and legal work.
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Privately held stock or restricted stock: These require extra care. Valuation is more complex and may require a qualified appraisal; transfer mechanics differ. See our guide on charitable gifting of privately held company shares for more detail: “Charitable Gifting of Privately Held Company Shares” (https://finhelp.io/glossary/charitable-gifting-of-privately-held-company-shares/).
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Bunching and timing: Coordinate gifts in years when you itemize deductions or have higher income to maximize deduction utility. See our related resources on timing charitable gifts and documenting donations: “Charitable Gift Strategies for Highly Appreciated Assets” (https://finhelp.io/glossary/charitable-gift-strategies-for-highly-appreciated-assets/) and “How to Document Charitable Donations for Tax Time” (https://finhelp.io/glossary/how-to-document-charitable-donations-for-tax-time/).
Common mistakes to avoid
- Selling before donating: This generally creates an unnecessary capital gains tax event.
- Donating short-term holdings and expecting FMV deduction: Short-term <1-year holdings usually limit your deduction to basis.
- Failing to get contemporaneous acknowledgment: Without it, you may lose the deduction for noncash gifts over $250.
- Improper valuation or missing Form 8283 when required: This can trigger an audit or disallowance.
Documentation checklist (what to keep)
- Broker transfer confirmation showing date/number of shares transferred.
- Charity acknowledgment (contemporaneous written acknowledgement) with description of property and statement of whether goods/services were provided.
- Form 8283 (if noncash donations exceed $5,000) and any required appraisals.
- Your records showing your basis and holding period.
Final considerations and professional advice
Gifting appreciated securities is one of the most tax-efficient ways to give when the assets are long-term winners. The rules are technical — holding period, valuation, deduction limits, and reporting requirements matter. In my experience advising clients, the biggest wins come from planning ahead (timing gifts to years you itemize, using DAFs for flexibility, and avoiding selling first).
This article summarizes key rules and practical steps but is not individualized tax advice. For questions about your situation — especially for large gifts, private company stock, or complex trusts — consult a qualified CPA, tax attorney, or financial advisor.
Authoritative references
- IRS Publication 526, Charitable Contributions: https://www.irs.gov/publications/p526
- IRS Publication 561, Determining the Value of Donated Property: https://www.irs.gov/publications/p561
- Form 8283 instructions (Noncash Charitable Contributions): https://www.irs.gov/forms-pubs/about-form-8283
- IRS newsroom: Giving to charity: what you need to know: https://www.irs.gov/newsroom/giving-to-charity-what-you-need-to-know
Professional disclaimer
This content is educational and general in nature. It does not replace personalized tax, legal, or financial advice. Consult a licensed tax professional before taking action related to gifts of appreciated securities.
