Why donors choose to give appreciated assets

Donating long‑term appreciated assets is a common tax‑efficient giving strategy because it often delivers two benefits at once:

  • You may receive a charitable income tax deduction for the asset’s fair market value (FMV) at the date of donation.
  • You generally avoid recognizing capital gains on the appreciation you would have paid if you sold the asset first.

Together, these benefits let more of the asset’s value go to the charity while reducing the donor’s after‑tax cost of giving. This is why financial planners recommend this approach for clients who hold highly appreciated, long‑term investments.

(Author note: In my 15 years of advising clients, this strategy routinely increased the effective size of gifts by 20–40% compared with selling first and donating cash.)

How the deduction and capital gains rules actually work

Key rules to know (current as of 2025):

  • Long‑term capital gain property: Property held more than one year is treated as long‑term capital gain property. Donating long‑term appreciated property to a qualified public charity generally lets you deduct the FMV of the property and avoid capital gains tax on the appreciation (see IRS Publication 526 and Publication 561) (IRS Pub. 526, Pub. 561: https://www.irs.gov/).

  • AGI limits: For gifts of long‑term appreciated property to public charities, the deduction is generally limited to 30% of your adjusted gross income (AGI). Cash gifts to public charities generally have a higher AGI limit (typically 60% of AGI). Excess amounts can usually be carried forward up to five years (IRS Pub. 526).

  • Short‑term holdings: If you’ve held the asset one year or less, the deduction generally equals your basis (what you paid) rather than FMV; the capital gain on short‑term property is taxed as ordinary income if sold.

  • Donor type and charity type: The 30% limit applies to public charities; private foundations often have lower limits (typically 20% for long‑term appreciated property). Check the charity’s tax status before donating (IRS Tax Exempt Organization Search: https://www.irs.gov/charities-non-profits/tax-exempt-organization-search).

Common forms, documentation, and substantiation rules

Proper documentation is essential to claim the deduction and withstand IRS review:

  • Written acknowledgement: For any single cash gift of $250 or more, the charity must provide a contemporaneous written acknowledgement (IRS requirement).

  • Form 8283 (Noncash Charitable Contributions): If your noncash donations exceed $500 in a tax year, you must complete Form 8283 and attach it to your return. For noncash donations over $5,000 (per item or group), you generally must obtain a qualified appraisal and complete Section B of Form 8283 (IRS Form 8283 guidance).

  • Valuation: For publicly traded securities, FMV is usually the market price on the date of contribution. For real estate, collectibles, or private company shares, a qualified appraisal is often required for large gifts; see IRS Publication 561 for valuation rules.

  • Keep records: Brokerage transfer confirmations, signed acknowledgements from charities, appraisals, and records of original purchase price (basis) are the core documents you’ll need.

For practical guidance on documenting gifts, see our internal guide: How to Document Charitable Donations for Tax Purposes (https://finhelp.io/glossary/how-to-document-charitable-donations-for-tax-purposes/).

Typical asset types and special rules

  • Publicly traded stocks and mutual fund shares: These are the simplest appreciated assets to give. Transfer the shares in‑kind from your brokerage account to the charity’s brokerage account. You can normally deduct FMV and avoid capital gains if held >1 year.

  • Real estate: Donating appreciated real estate can be powerful but complex. You’ll need an appraisal, title review, and cooperation from the charity (they may sell the property). If the charity can use the property for its exempt purpose, you may deduct FMV; otherwise special rules may limit the deduction.

  • Closely held stock or business interests: These gifts can require extra legal and tax work (e.g., valuation discounts, restrictions). Many charities will not accept complex interests without prior approval.

  • Collectibles and tangible personal property: Special rules apply. If the donated tangible property doesn’t further the charity’s mission, your deduction may be limited to your basis rather than FMV. See IRS Publication 561 for details.

Concrete examples

Example 1 — Stock donated in‑kind

  • Purchase price (basis): $10,000
  • Current market value: $50,000 (held >1 year)
  • If you sold the stock, taxable gain ~ $40,000. At a 20% long‑term capital gains rate plus 3.8% net investment income tax for some taxpayers, tax could be ~24% on gains (varies by taxpayer).
  • By donating the stock directly, you avoid the tax on the $40,000 gain and generally deduct the $50,000 FMV (subject to AGI limits). That means more goes to charity and you likely reduce your overall tax liability that year.

Example 2 — Donating real estate

  • Basis: $100,000; FMV: $300,000 (held >1 year)
  • Donating directly avoids capital gains triggered by sale (which could be substantial) and may yield a $300,000 deduction — assuming the charity can accept and either use or sell the property. Expect to coordinate appraisals, title transfer, and Form 8283.

Practical step‑by‑step process

  1. Confirm the charity’s status: Use the IRS Tax Exempt Organization Search to verify the recipient is a qualified 501(c)(3).
  2. Decide whether to give the asset in‑kind or sell then give cash. Consider your tax bracket, phantom tax (NIIT), state taxes, and AMT impacts.
  3. Contact the charity early to confirm they accept the asset and understand their process (brokerage transfer details, property acceptance policy, escrow requirements for real estate).
  4. Arrange transfer: For securities, initiate an in‑kind transfer through your broker. For real estate, coordinate title work and appraisal.
  5. Collect documentation: contemporaneous acknowledgement, Form 8283 (if required), qualified appraisal for gifts over $5,000 when applicable.
  6. Report on your tax return and, if necessary, attach Form 8283 and the appraisal summary.

Tax planning strategies and alternatives

  • Donor‑Advised Funds (DAFs): Give appreciated securities to a DAF to get an immediate deduction and recommend grants to charities over time. See our explainer: Donor‑Advised Funds vs. Charitable Trusts: When to Use Each (https://finhelp.io/glossary/donor-advised-funds-vs-charitable-trusts-when-to-use-each/).

  • Bunching gifts: If your deduction benefit depends on itemizing, concentrate multiple years of giving into one tax year to exceed the standard deduction.

  • Charitable remainder trusts or lead trusts: For large or complex gifts (real estate or business interests), consider trusts that provide income, tax deferral, or estate planning benefits. See our overview of tax‑efficient charitable strategies for more options: Tax‑Efficient Charitable Giving Strategies (https://finhelp.io/glossary/tax-efficient-charitable-giving-strategies-3/).

  • Qualified Charitable Distributions (QCDs): If you’re 70½ or older (check current age thresholds in law), QCDs let you give up to $100,000 from an IRA directly to charity and exclude the distribution from taxable income. QCDs are different from donating appreciated assets but are often part of charitable tax planning.

Common mistakes and how to avoid them

  • Failing to verify charity status: Don’t assume every good cause qualifies—use the IRS search tool.
  • Skipping appraisal or Form 8283 requirements: Missing these can cost your deduction.
  • Donating assets the charity can’t accept: Check policies first; many charities won’t take closely held stock or real estate without advance approval.
  • Forgetting AGI limits: Plan around the 30% FMV cap and the five‑year carryforward rule.

When selling first makes sense

Selling an appreciated asset and donating the cash can be better if:

  • The donor needs to harvest losses elsewhere.
  • The donated asset is short‑term (≤1 year), in which case FMV deduction rules don’t apply.
  • The charity cannot accept the asset or the administrative burden is too large.

Practical checklist before you donate

  • Verify charity’s 501(c)(3) status.
  • Confirm the charity accepts your asset type and understands transfer steps.
  • Assemble cost basis, purchase records, and holding period proof.
  • Obtain a qualified appraisal for applicable gifts and be ready to complete Form 8283.
  • Consult a tax pro to confirm AGI limit impact and carryforward planning.

Professional disclaimer

This article is educational and does not constitute tax or legal advice. Tax rules change and individual circumstances vary—consult a qualified tax advisor or attorney before making significant charitable gifts. Relevant IRS guidance includes Publication 526 (Charitable Contributions), Publication 561 (Determining the Value of Donated Property), Form 8283 instructions, and the Tax Exempt Organization Search on the IRS website (https://www.irs.gov/).

Authoritative sources

By following the steps above and coordinating with the receiving charity and a tax professional, giving appreciated assets can be one of the most tax‑efficient and impactful ways to support causes you care about.