Charitable Gift Strategies for Highly Appreciated Assets

How do charitable gift strategies for highly appreciated assets work?

Donating highly appreciated property—publicly traded stock, privately held shares, real estate, or other investments—lets a donor generally deduct the assets fair market value (FMV) and avoid recognizing the accrued capital gain that would apply if the asset were sold first. That combination can produce larger tax‑deductible gifts and reduce taxes compared with selling and giving cash.

Below I lay out the practical steps, the IRS rules you must follow, typical vehicles and tradeoffs, recordkeeping and valuation requirements, sample scenarios from practice, and when you should call a tax professional.

The basic mechanics

1. Identify the asset you own that has long‑term appreciation (held more than one year).
2. Confirm the charity can accept that type of gift. Many public charities and donor‑advised funds accept publicly traded securities; tangible property and private stock often require pre‑approval.
3. Transfer the asset directly to the charity (electronic delivery for securities, deed or assignment for property), not by selling first.
4. Value the gift at the FMV on the date of contribution and claim the charitable deduction on that years tax return subject to AGI limits.

Why direct transfer matters: If you sell the asset first, you trigger capital gains tax and only can donate the after‑tax proceeds. Transferring the asset directly generally avoids that taxable sale and yields a larger deductible gift.

Authoritative sources: IRS rules on charitable contributions and valuation—see IRS Charitable Contributions and IRS Publication 561 (Determining the Value of Donated Property) for valuation and substantiation details.[1][2]

Key tax rules (current as of 2025)

• Deduction amount: For gifts of long‑term appreciated capital gain property to qualified public charities, donors may generally deduct the FMV of the asset, subject to limits. The deduction ceiling is typically 30% of your adjusted gross income (AGI) for FMV gifts to most public charities; different limits apply for gifts to private foundations (commonly 20% of AGI).
• Carryover: If your charitable deduction exceeds AGI limits, you can generally carry forward unused amounts for up to five years.
• Substantiation: For noncash gifts over $500 you must complete IRS Form 8283. Gifts of property valued over $5,000 usually require a qualified appraisal and attachment of Section B of Form 8283 (exceptions apply for publicly traded securities).[3]
• Long‑term holding rule: The favorable FMV deduction (rather than basis) generally applies only if the donated property is long‑term capital gain property (held >1 year).

References: IRS Charitable Contributions; IRS Form 8283 instructions; IRS Publication 561.[1][2][3]

Common vehicles and when to use them

• Direct gifts to public charities: Best for publicly traded stock and when you want a simple transfer with an immediate deduction. Public charities often sell securities quickly and use proceeds for programs.

• Donor‑Advised Funds (DAFs): A DAF gives an immediate tax deduction when you fund the account but lets you recommend grants over time. Donating appreciated securities to a DAF is a common tactic to lock in the FMV deduction while spreading grants. For practice notes and DAF pros/cons, see our guide on Donor‑Advised Funds.internal link: Donor‑Advised Funds (DAFs).

• Charitable Remainder Trusts (CRTs): If you want an income stream and a partial charitable deduction, a CRT sells donated assets within a tax‑exempt trust and pays you an annuity or unitrust amount, with the remainder going to charity. CRTs are useful when the asset is illiquid or carries built‑in gains that would be costly to sell outright; they require more setup and legal work.

• Private foundations, charitable lead trusts, charitable gift annuities: These vehicles can meet legacy objectives, but tax deductibility rules and administrative complexity differ from public charities and DAFs. See our comparisons for choosing vehicles and when a charitable lead trust may make sense.internal link: Charitable Remainder Trusts vs Donor‑Advised Funds.

Documentation and valuation: avoiding common pitfalls

• Publicly traded securities: Value is typically the average of the high and low price on the date of contribution (check your broker statement). No appraisal is required, but you must report details on Form 8283 if the gift exceeds $500.[3]

• Non‑public assets (real estate, private company shares, art): Generally require a qualified appraisal if value exceeds $5,000 and you must attach the appraisal to Form 8283. Charities sometimes refuse these gifts because of carrying costs, so get advance approval.

• Broker transfers: For stocks held at a brokerage, use the charitys DTC credentials or the receiving brokers instructions for an in‑kind transfer. Do not sell in your account and donate the cash unless you intend to recognize gain.

• Charity acknowledgement: Obtain a contemporaneous written acknowledgment from the charity for gifts over $250 describing the property and stating whether you received any goods or services in return. Keep all records for tax filing and potential audits.

For practical, step‑by‑step instructions when donating marketable securities, see our how‑to guide on giving through stock.internal link: Giving Through Stock: A How‑To Guide for Donors.

Practical examples from practice

1) Publicly traded stock donation
A client had stock purchased years earlier for $50k and now worth $500k. By transferring the shares directly to a public charity, the client could claim a $500k FMV deduction (subject to AGI limits), and the charity sells the stock without the donor recognizing the $450k gain.

2) Real estate donation decision
A family owned a rental house with large unrealized gain but tenant and maintenance obligations. The charity could accept the property, but after assessing costs the advisor recommended either (a) give proceeds from sale—after the owner sold, paid capital gains tax and donated cash—or (b) fund a donor‑advised fund with an alternative asset and give other assets directly. Each option has tradeoffs in tax efficiency and operational burden.

What donors frequently misunderstand

• “I can always deduct the full FMV.” Not always. The FMV deduction for long‑term appreciated property applies to qualified public charities and is limited by AGI ceilings. Gifts to private foundations follow different limits and rules.

• “No paperwork is necessary.” Wrong—Form 8283 and appraisals (when required) are commonly needed. Poor substantiation risks denial of the deduction.

• “All charities accept any property.” Many charities cannot or will not accept complex or illiquid gifts. Confirm acceptance and discuss transfer logistics in advance.

When gifting closely held or private company shares

Gifting private company stock is possible but requires extra diligence: the charity must be comfortable holding (or promptly selling) the security, and valuation often requires an independent appraisal. Sometimes the practical solution is to sell the interest first within an estate plan, or to use a CRT that can monetize the asset within the trust.

Estate and income tax planning interactions

Donating appreciated assets during life reduces the size of your taxable estate and can lower estate tax exposure. Some donors use gifts plus trusts (CRTs, CLTs) to balance lifetime income needs with philanthropic goals. Coordinate with estate counsel.

Action checklist before you donate

• Confirm the charity is a qualified 501(c)(3) (check IRS Exempt Organizations Select Check).
• Confirm the charity will accept the asset and understand transfer steps.
• Obtain a valuation approach and determine whether an appraisal is required.
• Prepare Form 8283 and supporting documents; get contemporaneous acknowledgment for gifts >$250.
• Consult your CPA or tax attorney to confirm AGI limits and carryover rules for your situation.

Final professional recommendations

In my practice, donors who plan ahead and transfer highly appreciated publicly traded securities or approved assets directly to charities or donor‑advised funds consistently obtain the best tax outcome. Illiquid and private assets require more planning and often a charitable vehicle (CRTs or negotiated direct gifts) to be effective.

This article is educational and does not replace individualized tax advice. For a tailored plan, consult your CPA or qualified tax attorney before making significant gifts.

Sources

1. IRS — Charitable Contributions. https://www.irs.gov/charities-non-profits/charitable-contributions
2. IRS Publication 561, Determining the Value of Donated Property. https://www.irs.gov/publications/p561
3. IRS Form 8283 Instructions, Noncash Charitable Contributions. https://www.irs.gov/forms-pubs/about-form-8283

Further reading on FinHelp.io

• Donor‑Advised Funds (DAFs): https://finhelp.io/glossary/donor-advised-funds-dafs/
• Giving Through Stock: A How‑To Guide for Donors: https://finhelp.io/glossary/giving-through-stock-a-how-to-guide-for-donors/
• Recordkeeping for Donors: Receipts, Valuations, and Substantiation: https://finhelp.io/glossary/recordkeeping-for-donors-receipts-valuations-and-substantiation/

Disclaimer: Educational only. Consult a qualified tax advisor for personalized tax or legal advice.