Why donors consider giving stock or private equity
Donating appreciated securities — whether publicly traded stock or interests in a privately held company — is a common way to increase philanthropic impact and reduce the tax cost of concentrated, highly appreciated positions. Instead of selling an appreciated asset and donating the cash (which crystallizes capital gains tax), a direct gift of the asset to a qualified charity can:
- Avoid recognition of capital gains on the donated portion, and
- Allow a charitable income tax deduction for the asset’s fair market value (subject to IRS limits and rules).
These rules are described in IRS Publication 526 (Charitable Contributions) and the instructions for Form 8283 (Noncash Charitable Contributions) (see sources below). Always confirm current rules with a tax advisor before acting.
How the tax benefit works — a short example with assumptions
Suppose you bought stock for $10,000 and it’s now worth $50,000 (long‑term holding). If you sell and give the cash, you owe tax on the $40,000 gain. If your long‑term capital gains rate is 20% (plus any 3.8% Net Investment Income Tax if applicable), that tax can be substantial. If instead you donate the shares directly to a public charity, you generally:
- Avoid the capital gains tax on the $40,000 appreciation, and
- May claim a charitable deduction for the $50,000 fair market value (subject to adjusted gross income limits).
This is an illustrative example only; your actual tax outcome depends on holding period, character of the gain, your tax bracket, state taxes, and whether special rules (NIIT, AMT) apply.
Which assets qualify and which are trickier
- Publicly traded stocks and mutual fund shares: straightforward to transfer to most charities or to a brokered Donor‑Advised Fund (DAF). The FMV is typically the average of the high and low prices on the donation date.
- Privately held stock and private equity interests: these are valued less frequently, may have transfer restrictions, and many charities will not accept them directly. Transfers often require a charity’s board approval and a qualified appraisal for tax substantiation.
- Employee stock (RSUs, options, restricted stock): these have special tax timing rules and may not be eligible for FMV deduction until vesting/settlement events are complete.
If you hold closely held stock, consider vehicles such as a DAF operated by a community foundation, a charitable remainder trust (CRT), or selling the interest to a third party and donating the proceeds — each has different tax and practical consequences.
Valuation and substantiation: what the IRS requires
- Gifts of publicly traded securities: charity or your broker will provide a written acknowledgment showing the date of the gift and number of shares. For noncash gifts over $500 you must file Form 8283 with your return; if a single item’s claimed value exceeds $5,000, a qualified appraisal and Section B of Form 8283 are generally required (see Form 8283 instructions).
- Gifts of privately held stock or partnership interests: the IRS requires a qualified appraisal when the claimed value is more than $5,000; charities may also ask for transfer documentation, governing agreements, and legal opinions. The appraisal must meet IRS rules for appraiser qualifications and content (see IRS guidance on Form 8283 and appraisal requirements).
Sources: IRS Publication 526; Form 8283 Instructions (irs.gov).
AGI limits and deduction character
- Long‑term appreciated capital gain property to public charities: deduction generally limited to 30% of your adjusted gross income (AGI). Amounts above the limit carry forward up to five years.
- Cash gifts: generally subject to a 60% of AGI limit for public charities.
- Gifts to private foundations: lower percentage limits often apply (commonly 20% for long‑term appreciated property).
These percentage limits and carryforward rules are important for planning — if your gift value is large relative to your income, you may need to spread tax benefits over several years or use alternative structures (see charitable vehicles below). Confirm current limits with your CPA or tax counsel and the latest IRS guidance.
Practical steps: a checklist to donate private equity or stock
- Pre‑gift planning
- Talk to your CPA and legal advisor about tax consequences, any corporate buy‑sell or transfer restrictions, and the charity’s ability to accept the asset.
- Confirm whether the recipient charity accepts private stock. Many operate policies against accepting nonpublic securities.
- Choose the vehicle
- Direct gift to public charity: simplest if the charity accepts the asset. Immediate deduction and no capital gains tax on the donor.
- Donor‑Advised Fund (DAF): a practical solution when the charity will not accept private securities directly. You donate the asset to the sponsoring organization (which will accept, liquidate, and hold proceeds in the fund) and you advise grants over time. See our primer on Donor‑Advised Funds for mechanics and pros/cons. (internal link: “Donor‑Advised Funds (DAFs)”)
- Charitable Remainder Trust (CRT) or private foundation: useful for larger, complex gifts that may produce income or legacy control, but these require more setup and administration.
- Obtain valuation and approvals
- For privately held interests, arrange for a qualified appraisal well before year‑end if you expect to claim a value over $5,000. Ensure the charity approves accepting the asset and consult corporate counsel if transfer provisions apply.
- Transfer mechanics
- For publicly traded stock: instruct your broker to transfer shares in kind to the charity’s brokerage account. Record the date and obtain written acknowledgement.
- For private equity: follow the company’s transfer process, obtain board or shareholder approvals if required, and deliver required transfer documents to the donee charity.
- Document and report
- Keep the charity’s contemporaneous written acknowledgement for any contribution of $250 or more.
- File Form 8283 for noncash gifts over $500. If an appraisal is required, attach the appraisal summary to Form 8283 and have the appraiser and charity sign where required.
See our checklist on Recordkeeping for Donors: Receipts, Valuations, and Substantiation for sample forms and timelines.
When charities won’t accept private equity: practical alternatives
- Donor‑Advised Fund (DAF): many DAF sponsors accept private securities, liquidate them, and place the proceeds in the DAF. This retains tax benefits and simplifies the process. See “Donor‑Advised Funds (DAFs)” and “Giving Through Stock: A How‑To Guide for Donors” for details.
- Charitable Remainder Trust (CRT): you transfer the asset to a CRT, which can sell it without immediate capital gains tax at the trust level, pay you an income stream, and ultimately distribute the remainder to charity. CRTs require legal setup and ongoing administration.
- Sale to a friendly buyer or recapitalization before gifting proceeds: depending on restrictions and valuation, this may be an option — but selling the asset may trigger capital gains.
Internal resources:
- Giving mechanics and decisions: Giving Through Stock: A How‑To Guide for Donors
- When to use a DAF vs a private foundation: When to Use a Donor‑Advised Fund vs a Private Foundation (Choosing the Right Vehicle)
Common mistakes and how to avoid them
- Overvaluing the asset: claiming an unsupported FMV invites IRS scrutiny. Use a qualified appraiser for private assets and retain documentation.
- Donating restricted or illiquid interests that the charity can’t sell: confirm acceptance and resale prospects before transfer.
- Missing filing requirements: Form 8283 and written acknowledgements are commonly overlooked; failure can disallow deductions.
- Ignoring AGI limits: large gifts may not be fully deductible in the current year. Plan for carryforwards or use split‑interest vehicles.
Example scenarios
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High‑value closely held stock (private equity): you own 10% of a startup with a valuation that’s increased substantially. The charity declines direct transfer. A common path is donating the interest to a CRT or to a DAF that will accept and liquidate the interest after appropriate approvals — getting an immediate deduction while deferring or eliminating capital gains.
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Publicly traded concentrated position: you own a large stake in a public company and want to reduce concentration while supporting charity. A gift‑in‑kind to a DAF or direct to charity simplifies transfer and provides the FMV deduction without recognizing gain.
Reporting and tax return items to watch
- Form 8283 for noncash gifts over $500; Section B and an appraisal required for single‑item gifts over $5,000.
- Written acknowledgement from the charity describing the donated property and confirming no goods or services were provided in return if the claimed value is the deduction.
- If you receive any goods or benefits in return (e.g., tickets, membership), the charity must state the value of those benefits; only the excess is deductible.
Reference IRS guidance: Publication 526 and Form 8283 instructions (https://www.irs.gov/).
Tax planning tips (in practice)
- Bunching: If you itemize occasionally, bunching multiple years of charitable gifts into one tax year using a DAF or CRT can maximize current deductions.
- Consider state tax effects: state treatment of charitable deductions varies and may change the relative benefit of donating vs selling.
- Watch for NIIT and state taxes: high‑income donors may face the 3.8% Net Investment Income Tax (NIIT) in addition to federal capital gains tax; donating appreciated property can avoid both at the federal level but state rules differ.
In my practice I often advise clients to: (1) confirm the charity can accept the asset before arranging an appraisal; (2) use a DAF for complex or illiquid gifts to simplify administration; and (3) involve legal counsel when transferring ownership of private company interests.
Final checklist before you give
- Confirm the charity’s acceptance policy and account details.
- Obtain required appraisals and complete Form 8283 where needed.
- Secure written acknowledgements and maintain clear transfer documentation.
- Coordinate timing with your CPA to optimize AGI limits and carryforwards.
Authoritative sources
- IRS Publication 526, Charitable Contributions: https://www.irs.gov/publications/p526
- Form 8283, Noncash Charitable Contributions — Instructions: https://www.irs.gov/instructions/i8283
Disclaimer: This article provides general information and does not constitute legal, tax, or investment advice. For personalized guidance, consult a qualified CPA, tax attorney, or financial advisor who can analyze your specific facts and current 2025 tax rules.
