Why donate appreciated stock instead of cash

Donating appreciated stock can stretch the value of your gift. When you give shares you’ve owned for more than one year, you generally:

  • Avoid capital gains tax on the appreciation (you don’t trigger a taxable sale).
  • Claim a charitable income tax deduction for the stock’s fair market value at the time of the gift (if you itemize).

These two effects often combine to make stock gifts more tax-efficient than selling the shares, paying capital gains tax, and donating the after-tax proceeds. The IRS explains these rules in its guidance on charitable contributions and valuation (see IRS Publication 526 and Publication 561) (https://www.irs.gov/publications/p526; https://www.irs.gov/publications/p561).

In my 15 years advising clients, donors who use appreciated stock routinely give larger gifts to their chosen charities without increasing out-of-pocket cost. For example, when a client donates long-held shares to a donor-advised fund (DAF), they lock in a deduction while the charity or DAF can sell without immediate tax consequences, converting the gift into cash for grants.

Who should consider this strategy

  • Investors with long-term (more than one year) appreciated, publicly traded securities.
  • Donors seeking immediate tax benefits but who don’t need to direct funds right away (good fit for DAFs or private foundations).
  • Those with concentrated positions who want to reduce exposure while supporting charities.

If shares were held one year or less, the deduction is generally limited to the donor’s cost basis (not the full market value), so the tax benefit is reduced.

Key IRS rules and limits (current through 2025)

  • Fair market value deduction for long-term appreciated publicly traded securities donated to a public charity: generally limited to 30% of your adjusted gross income (AGI). Excess can be carried forward up to five years (IRS Publication 526). (https://www.irs.gov/publications/p526)
  • Gifts to certain private foundations and some other organizations may be subject to a 20% of AGI limit for capital-gain property.
  • For non-cash contributions exceeding $500, you must file Form 8283 with your tax return. If the deduction for a single non-cash item exceeds $5,000, follow the Form 8283 appraisal requirements (see Form 8283 instructions). (https://www.irs.gov/forms-pubs/about-form-8283)
  • For publicly traded securities, fair market value is typically determined using the average of the high and low price on the date of contribution (IRS Publication 561). (https://www.irs.gov/publications/p561)

Step-by-step: How to give appreciated stock to charity (practical checklist)

  1. Confirm the charity accepts stock gifts. Most large public charities and DAF sponsors accept transfers; some smaller organizations do not.
  2. Gather donation details the charity or your broker will need: the charity’s brokerage account name, DTC number, account number, and the charity’s contact person.
  3. Contact your broker to initiate a direct transfer (DTC or ACATS transfer). Do not sell first—transferring directly avoids constructive receipt of proceeds and the related tax.
  4. Record the gift date and the number of shares transferred. For publicly traded stock, the donation date is the date shares are transferred to the charity’s account.
  5. Get written acknowledgment from the charity showing the donation date, number of shares, and a description of the securities (required for your tax record).
  6. Complete Form 8283 when required and retain brokerage statements showing the transfer. If the donated securities exceed $5,000 and are not publicly traded, secure a qualified appraisal per IRS rules.

Practical example (simplified)

Assume you bought shares for $10,000 and they are worth $40,000 today. If you sell and donate the cash, you pay capital gains tax on the $30,000 gain; at a 15% long-term rate (plus state tax, if applicable), that could be roughly $4,500–$6,000 in federal tax. Donate the stock directly instead: you avoid that capital gains tax and—if you itemize—may deduct the $40,000 fair market value (subject to AGI limits). That increases the charity’s funding and your tax efficiency.

Documentation and proof you’ll need for the IRS

  • Charity acknowledgment (required for any gift of $250 or more).
  • Broker transfer statements and the charity’s deposit confirmation showing the date and amount/value.
  • Form 8283 for non-cash contributions over $500; if required, attach a qualified appraisal for non-publicly traded items with value over $5,000 (see Form 8283 instructions). (https://www.irs.gov/forms-pubs/about-form-8283)

Variations and vehicles to consider

  • Donor-Advised Funds (DAFs): You get an immediate deduction for the stock’s value when you donate to a DAF, then recommend grants later. DAFs are often the easiest vehicle for donating appreciated securities.
  • Private foundations: Accept stock gifts, but tax rules and administrative costs differ; deduction limits may be stricter (usually 20% of AGI for capital-gain property).
  • Direct gifts to public charities: Many will accept securities and liquidate them for operating use. Ask whether the charity will liquidate promptly or hold the position.

Common mistakes and how to avoid them

  • Donor sells first and then donates cash: this creates a taxable event and usually reduces the after-tax gift.
  • Failing to confirm the charity’s brokerage details before initiating a transfer—can delay or misdirect the gift.
  • Missing Form 8283 or keeping inadequate records—may jeopardize your deduction.
  • Donating short-term holdings expecting long-term treatment—confirm holding period to ensure full FMV deduction.

Coordinating with tax planning

Work with your CPA or financial planner before making large stock gifts. In my practice I coordinate stock gifts with income projections, AMT considerations, and state tax rules to optimize timing and avoid unintended tax interactions. Also consider whether you should bunch multiple years of charitable giving into one year to surpass the standard deduction threshold and itemize.

For additional strategies on using appreciated assets beyond stocks, see FinHelp’s guides on Using Appreciated Assets to Maximize Charitable Value and the step-by-step process in Gifting Appreciated Assets: Step-by-Step Donating Stocks and Real Estate.

When this strategy isn’t the best fit

  • If the position has not been held long enough to qualify as long-term, deducting the full market value may not be allowed.
  • If you need the tax deduction in a different year than when you give (though carryforwards are possible), or if the charity cannot accept securities.

Bottom line

Donating appreciated stock is a widely used, tax-efficient way to increase charitable impact: you generally avoid capital gains tax and can claim a fair market value deduction for long-term holdings, subject to IRS limits and documentation rules. Start by confirming the charity accepts securities, coordinate the transfer with your broker, and keep thorough records. For case-specific planning, consult a tax professional.

Professional disclaimer: This content is educational and does not replace personalized tax, legal, or financial advice. Consult a qualified tax advisor or attorney about your specific circumstances before making significant charitable or tax decisions.

Authoritative sources and further reading:

(Information current as of 2025.)