Why donating appreciated assets can be smarter than giving cash

Donating appreciated stocks or real estate often produces a larger after-tax gift than selling the asset and donating the proceeds. When you give a long-term appreciated asset to a qualified 501(c)(3) charity, two tax advantages typically apply: (1) you avoid paying capital gains tax on the appreciation, and (2) you may deduct the fair market value (FMV) of the asset on the date of the donation — subject to adjusted gross income (AGI) limits and documentation rules. The result: more of the asset’s full value goes to the charity rather than to taxes or transaction costs.

These rules are outlined by the IRS (see Publication 526 and the IRS charitable contributions guidance) and are widely used in tax-aware giving strategies. For specifics on recordkeeping and Forms, see the IRS guidance on charitable contributions and Form 8283 (Noncash Charitable Contributions).

How it works — simple example

  • You bought stock five years ago for $10,000. Today it’s worth $25,000.
  • Option A: Sell the stock, pay capital gains tax on the $15,000 gain, and donate the after-tax proceeds.
  • Option B: Donate the stock directly to a qualified charity. You usually (1) avoid capital gains tax, and (2) may claim a $25,000 charitable deduction.

The tax and cash-flow math changes by tax bracket, capital gains rates, and whether you itemize. In practice I’ve had clients use direct stock donations to increase their charitable impact without triggering capital gains events — especially useful in high-appreciation holdings.

Key IRS rules you must know (current as of 2025)

  • Holding period: To deduct the FMV, the asset generally must be long-term (held > 1 year). If held ≤ 1 year, deduction is limited to cost basis, not FMV. (IRS Publication 526).
  • Deduction limits: Gifts of appreciated long-term capital gain property to public charities are generally limited to 30% of your AGI. Excess may be carried forward up to five tax years. (IRS Publication 561 and Publication 526).
  • Form 8283 and appraisals: Noncash donations require careful substantiation. Form 8283 is required if the total deduction for noncash gifts is more than $500. For donated property with a claimed value above $5,000 (real estate and most non-publicly traded property), a qualified appraisal is generally required and Section B of Form 8283 must be completed (exceptions apply for publicly traded securities). See IRS Form 8283 instructions and Publication 561 for appraisal rules.
  • Qualified recipient: The donee must be a tax-exempt organization that can accept the asset. Not every nonprofit can accept real estate or complex securities. Confirm the charity’s acceptance policy and tax-exempt status (IRS Tax Exempt Organization Search).

(IRS sources: Publication 526, Charitable Contributions; Publication 561, Determining the Value of Donated Property; and Form 8283 instructions.)

Common types of appreciated assets and special concerns

  • Publicly traded stocks and mutual funds: Often easiest to transfer. No qualified appraisal required. Broker-to-broker transfer preserves cost basis tracking and avoids sale.
  • Closely held stock and privately held business interests: Complex valuation and unrelated business income tax (UBIT) rules may apply; charities may be limited in accepting these.
  • Real estate (residential, commercial, land): Consider environmental liabilities, title issues, carrying costs, and whether the charity will use or sell the property. Charities sometimes decline property that involves substantial liabilities or maintenance burdens.
  • IRAs and retirement plans: Direct gifts from an IRA (Qualified Charitable Distributions) follow different rules and limits (QCDs are available for those 70½ and older historically and rules changed; consult a tax advisor).

Documentation, timing, and procedural checklist

  1. Confirm the charity can accept the asset and whether they want it outright, in-kind, or to a donor-advised fund (DAF).
  2. If donating publicly traded securities, instruct your broker to transfer shares directly to the charity’s brokerage account (broker-to-broker transfer). Do not sell first.
  3. Obtain a contemporaneous written acknowledgment from the charity for any single donation of $250 or more (required to claim a deduction).
  4. Complete IRS Form 8283 if noncash gifts exceed $500; for donated property with claimed value over $5,000, secure a qualified appraisal and attach it per Form 8283 instructions.
  5. If you’re near AGI limits, plan for bunching gifts or use vehicles like donor-advised funds to optimize timing and deduction utility.

Valuation and appraisal: real estate vs. securities

  • Securities traded on an active market are valued at the average of the high and low on the date of donation or fair market value determined by the broker transfer; no outside appraisal normally required.
  • Real estate generally requires a qualified appraisal for significant claimed values and a title review. A written appraisal helps support the FMV if the IRS questions the deduction. Publication 561 explains acceptable valuation methods.

Practical strategies to maximize impact

  • Donate the most appreciated holdings first: The larger the appreciation, the greater the tax efficiency.
  • Use a donor-advised fund (DAF) for flexible timing: Contribute appreciated securities to a DAF, claim the immediate tax deduction, then recommend grants over time. For background on DAFs and how they work, see our guide to Donor-Advised Funds: How They Work.
  • Coordinate with tax-year timing: If you expect a high-income year, accelerating a gift of appreciated assets into that year may yield bigger tax benefits.
  • Avoid short-term holdings: If you haven’t held the asset for more than one year, you’ll be limited to the cost basis deduction.

Common mistakes and how to avoid them

  • Assuming every charity accepts in-kind gifts. Always verify acceptance policies and the charity’s capacity to manage the asset.
  • Forgetting Form 8283 and proper appraisal documentation. Missing paperwork is a common trigger for denial of deductions.
  • Donating encumbered property. Liens or unresolved title matters can derail a gift and create tax complications.
  • Failing to transfer directly. Selling before donating often causes an unnecessary capital gains tax event.

Real-world scenarios (illustrative, anonymized)

  • Client A: Donated 10,000 shares of a long-held technology stock worth $150,000. By transferring shares directly to a university, the client avoided roughly $30,000 in capital gains tax and claimed the full FMV deduction (subject to AGI limits), resulting in a larger net gift than selling then giving.
  • Client B: Owned a rental lot with significant appreciation but also deferred maintenance and septic issues. The intended charity declined the gift due to projected cleanup costs. We arranged to sell the property, fund a DAF with the net proceeds, and secure the philanthropic objective while avoiding the charity’s liability.

When donating real estate, watch for these red flags

  • Environmental cleanup liability (CERCLA-style concerns).
  • Unmarketable title or easements restricting use.
  • High carrying costs (property taxes, insurance, maintenance).

Step-by-step: how to donate appreciated stock today

  1. Identify the security and holding period.
  2. Confirm the charity’s broker information (DTC number, account number, custodian).
  3. Instruct your broker to transfer shares in-kind to the charity’s brokerage account and notify the charity to expect the transfer.
  4. Secure the charity’s written acknowledgment showing the date and number of shares transferred and (for most securities) the charity may value the gift.
  5. File Form 8283 if required and retain transfer records and broker statements.

Interlinks and further reading on FinHelp

When to get professional help

Engage a CPA or tax attorney when donations involve:

  • High-value real estate or privately held business interests.
  • Complex valuation questions or potential unrelated business income tax (UBIT) issues.
  • Estate planning coordination or when the donation affects a taxable estate.

In my practice I find that early coordination—talking to your tax advisor and the charity before initiating a transfer—prevents the majority of transaction problems and ensures the gift achieves both philanthropic and tax objectives.

Final checklist before you donate

  • Confirm charity acceptance and account details.
  • Verify holding period (>1 year) for FMV deduction.
  • Arrange direct transfer (don’t sell first) for maximum tax efficiency.
  • Collect written acknowledgment and complete Form 8283/appraisal if required.
  • Coordinate timing against AGI limits; consider DAFs to smooth deductibility.

Professional disclaimer

This article is educational and not tax, legal, or investment advice. Rules change and facts vary by situation; consult a qualified tax advisor or attorney before acting. For official IRS guidance, see Publication 526 and Form 8283 instructions (IRS.gov).

Authoritative sources