Quick overview
Donating appreciated stock instead of cash is a common tax‑efficient strategy for philanthropically inclined investors. If you give stock you’ve owned for more than one year to a qualified public charity, you can typically (1) deduct the fair market value (FMV) of the shares on the date of the gift and (2) avoid paying capital gains tax on the built‑in appreciation. Cash gifts do not carry the same capital‑gains avoidance benefit, although they are simpler to process.
This article explains the IRS rules that matter, practical steps to transfer securities, how limits and carryovers work, common pitfalls to avoid, and quick worked examples to illustrate the math. It does not replace personalized tax or legal advice—consult your tax advisor for your situation.
How the tax rules work (the core differences)
- Appreciated long‑term securities (owned >1 year): When donated directly to a qualifying public charity, you generally get a deduction equal to the stock’s FMV and you do not recognize capital gain. This rule is discussed in IRS Publication 526 (Charitable Contributions) and reflected in Form 8283 instructions (see IRS Pub. 526 and Form 8283).
- Short‑term holdings (owned ≤1 year): If the stock has been owned for a year or less, the deduction for a gift of that property is generally limited to your cost basis (what you paid), not FMV.
- Cash gifts: You deduct the exact cash amount donated. Cash gifts do not eliminate capital gains tax on appreciated positions you sell and then give.
Why this matters: Consider an appreciated stock you bought for $10,000 that is now worth $30,000. If you sell and then donate the cash, you may owe capital gains tax on the $20,000 gain before you donate. If you donate the shares directly, the charity gets the full $30,000 and you typically deduct $30,000 (subject to AGI limits) while avoiding the capital gain.
(Authoritative source: IRS Publication 526 and Form 8283 instructions; see also guidance from National Philanthropic Trust on donating appreciated stock.)
Limits, carryovers, and recipient type
- AGI limits: The deduction for gifts of appreciated long‑term capital gain property to a public charity is generally limited to 30% of your adjusted gross income (AGI). For cash gifts to public charities, the limit is higher—generally 60% of AGI. If you exceed the limit, you can carry forward unused charitable deductions for up to five years subject to the same limits in later years. (IRS Pub. 526)
- Private foundations and certain split‑interest gifts: Different rules apply. Gifts of appreciated property to private foundations typically face a lower AGI ceiling (commonly 20% of AGI) and other restrictions. Check with your advisor before donating to a private foundation.
- Donor‑advised funds (DAFs): Donating appreciated stock to a DAF generally follows the same tax treatment for appreciation (FMV deduction subject to the public charity/DAF limits). Note that DAFs are public charities but distributions from a DAF to operating charities are at the donor’s future direction, so review DAF reporting rules. See our guide on Donor‑Advised Fund Reporting and Best Practices for operational considerations (internal link: Donor‑Advised Fund Reporting and Best Practices: https://finhelp.io/glossary/donor-advised-fund-reporting-and-best-practices/).
Required substantiation and forms (don’t skip paperwork)
- Written acknowledgement: For any single donation of $250 or more, the IRS requires a contemporaneous written acknowledgement from the charity that states whether you received goods or services in exchange for the gift. Keep this for your records (IRS Publication 526).
- Form 8283 (Noncash Charitable Contributions): If the total deduction for noncash gifts in a tax year exceeds $500, you must complete Form 8283. Publicly traded securities are easier: they generally do not require a qualified appraisal, but you still report them on Form 8283 as instructed.
- Appraisals: Noncash gifts valued above $5,000 often require a qualified appraisal and Section B of Form 8283, except for publicly traded securities where market prices establish FMV.
- Broker transfer records: If transferring stock via broker, keep transfer confirmations, DTC instructions, and the charity’s broker details. Those records substantiate the date and FMV of the gift.
For more on verification and recordkeeping, see our glossary pages on Substantiation and Recordkeeping (internal links: Substantiation: https://finhelp.io/glossary/substantiation/, Recordkeeping: https://finhelp.io/glossary/recordkeeping/).
Practical steps to donate stock (operational checklist)
- Confirm charity accepts stock: Not every small nonprofit has brokerage accounts or a process for accepting securities. Contact the charity’s development office to get transfer instructions (broker name, account number, DTC number, and tax ID/EIN).
- Decide which lot to donate: Choose long‑term lots (held >1 year) with the highest appreciation for the biggest tax benefit.
- Instruct your broker to transfer shares as a gift: Use an electronic transfer (DTC) where possible; it’s faster and minimizes price‑timing issues. Avoid selling first unless there’s a reason to monetize.
- Document the gift date and value: The FMV is generally the average of the high and low on the gift date (for publicly traded securities); confirm how your custodian reports FMV.
- Get the charity’s written acknowledgement: Include number of shares, company name, and date of gift. Keep transfer confirmations and the acknowledgement together for your tax file.
- Report as required on Schedule A and Form 8283 if applicable.
Timing note: For year‑end gifts, ensure the transfer is complete before market close on December 31 for it to count in that tax year. Electronic transfers can take several days; start early.
Common mistakes and how to avoid them
- Selling the stock and donating cash when you could have donated the shares directly; this needlessly triggers capital gains tax.
- Donating short‑term holdings expecting FMV treatment—remember the >1 year holding requirement.
- Failing to get the charity’s broker instructions or ignoring transfer paperwork and missing the donation deadline.
- Donating restricted stock or closely held shares without checking liquidity and acceptance rules—these often require special handling and valuation.
Special situations
- Donor‑advised funds: Popular for bunching and tax planning. Donating appreciated stock to a DAF gives an immediate charitable deduction while allowing you to recommend grants over time. Read our Donor‑Advised Fund Reporting and Best Practices article for nuances (internal link: https://finhelp.io/glossary/donor-advised-fund-reporting-and-best-practices/).
- Concentrated positions: If you have one stock that’s a large percentage of your portfolio, donating a portion can reduce concentration risk and deliver tax benefits; see our piece on Managing Concentrated Stock Positions for tax and hedging solutions (internal link: https://finhelp.io/glossary/managing-concentrated-stock-positions-tax-and-hedging-solutions/).
- IRA assets: Assets inside IRAs generally cannot be transferred in‑kind as a charitable gift without distribution. However, taxpayers who meet the age requirements can use a Qualified Charitable Distribution (QCD) to send up to $100,000 directly from a traditional IRA to an eligible charity (consult IRS Publication 590‑B and your advisor; QCDs have special rules and are excluded from income rather than deducted). QCDs typically cannot be used with donor‑advised funds.
Worked example (simple math)
Scenario: You bought stock for $10,000. It’s now worth $30,000 (long‑term). You’re in the 15% long‑term capital gains tax bracket and a 24% ordinary income tax bracket.
- Option A — Sell then donate: You sell, realize $20,000 gain. Capital gains tax ≈ $3,000 (15% of $20,000). Net cash to donate ≈ $27,000. If you then donate $27,000 cash, your charitable deduction reduces taxable income (subject to AGI limits) but you’ve already paid $3,000 in tax.
- Option B — Donate shares directly: Charity receives $30,000 in stock. You can generally deduct $30,000 (subject to limits) and avoid the $3,000 capital gains tax. The net tax‑efficiency difference is meaningful for higher‑bracket taxpayers.
Note: The exact tax impact depends on your marginal rates, AGI limits, and whether you itemize. If you don’t itemize because you take the standard deduction, the deduction may not produce tax savings in the near term; bunching strategies or using a DAF are common workarounds.
When giving cash may be preferable
- The charity cannot accept stock or the transfer will be administratively difficult or costly.
- You need the entire deduction in cash this year and your noncash deductions would be constrained by AGI limits or valuation uncertainty.
- You want to make a small, immediate gift without the paperwork of a securities transfer.
Final checklist before you act
- Confirm the charity accepts securities and obtain broker transfer details.
- Verify your holding period (>1 year for FMV treatment) and your cost basis records.
- Complete required IRS reporting (Form 8283 if over thresholds) and retain acknowledgement.
- Discuss AGI limits and carryover planning with your tax advisor.
Professional disclaimer
This article is educational and does not constitute tax or legal advice. Rules governing charitable deductions, AGI limits, QCDs, and reporting thresholds are complex and change over time. Consult your tax advisor or attorney before making significant charitable gifts.
Sources & further reading
- IRS Publication 526, Charitable Contributions: https://www.irs.gov/pub/irs-pdf/p526.pdf
- IRS Form 8283 and instructions (Noncash Charitable Contributions): https://www.irs.gov/forms-pubs/about-form-8283
- IRS Publication 590‑B (Distributions from Individual Retirement Arrangements) — see Qualified Charitable Distributions guidance: https://www.irs.gov/publications/p590b
- National Philanthropic Trust, Donating Appreciated Stock: https://www.nptrust.org/donate-stock/
For operational guides on concentration management and donor‑advised funds, see these FinHelp articles:
- Managing Concentrated Stock Positions: Tax and Hedging Solutions — https://finhelp.io/glossary/managing-concentrated-stock-positions-tax-and-hedging-solutions/
- Donor‑Advised Fund Reporting and Best Practices — https://finhelp.io/glossary/donor-advised-fund-reporting-and-best-practices/
- Substantiation — https://finhelp.io/glossary/substantiation/