Stock Donations: Tax Benefits and Process

Why donors use stock donations

Donating stock is a tax‑efficient way to give. The typical benefits are:

• Avoided capital gains tax on appreciation (if you give the shares directly instead of selling them first).
• A potential tax deduction for the fair market value (FMV) of long‑term appreciated publicly traded securities, if you itemize deductions.
• The ability to make a larger gift to charity because you’re giving pre‑tax appreciation rather than after‑tax cash.

These advantages make stock gifts especially attractive for donors holding highly appreciated positions and who itemize on Schedule A (Form 1040). See IRS guidance on charitable contributions for current rules (IRS: Charitable Contributions).

Key tax rules and limits (summary)

• Long‑term vs short‑term: To get a deduction based on FMV, the stock generally must be long‑term (held more than one year). Short‑term holdings are taxed differently and usually deductible only at cost basis.
• Deduction limits by type of charity and gift:
• Public charities and donor‑advised funds: deduction for long‑term appreciated securities is generally limited to 30% of your adjusted gross income (AGI).
• If you elect to deduct only your cost basis (rather than FMV), a higher AGI limit (typically 50% for public charities) may apply.
• Gifts to certain private foundations or non‑operating foundations typically have lower percentage limits (often 20% of AGI for appreciated property).
• Carryover: If your deduction exceeds the AGI limit, you can generally carry the unused amount forward up to five years.

(These are the standard rules reflected in IRS guidance; always confirm current limits before giving because tax law can change — see IRS: Charitable Contributions and IRS: Form 8283 instructions.)

Step‑by‑step process to donate stock

1. Confirm the charity qualifies

• Verify the organization is a qualified 501(c)(3) public charity (or other qualifying recipient) using the IRS Tax Exempt Organization Search or by asking the charity for proof of tax‑exempt status. Gifts to individuals, political organizations, and most foreign charities do not qualify.

1. Choose which shares to give

• Favor long‑term, highly appreciated publicly traded securities for the largest tax benefit. Consider which lots (purchase dates) you hold so any remaining position retains the best tax basis.

1. Contact your broker and the charity

• Most transfers are done electronically via the Depository Trust Company (DTC) or your broker’s transfer process. The charity may have a broker account and transfer instructions; the receiving account name and DTC/ACAT instructions are required.
• If the charity cannot accept direct transfers (common for some small nonprofits), consider donating through a donor‑advised fund (DAF) or selling the shares and donating the cash — but selling first triggers capital gains tax.

1. Execute the transfer

• Instruct your broker to transfer the shares directly to the charity’s brokerage account. Do not sell first if your goal is to avoid capital gains.

1. Get written acknowledgement

• For any contribution of $250 or more, obtain a contemporaneous written acknowledgement from the charity describing the donated property, date of the gift, and a statement about whether you received any goods or services in return (IRS substantiation rules). Keep brokerage records showing the transfer.

1. Report the gift on your tax return

• Itemize on Schedule A (Form 1040) to claim the deduction. For noncash gifts over $500, attach Form 8283; for publicly traded securities over $5000, complete Section A of Form 8283 (a qualified appraisal is not required for publicly traded securities). If you donate non‑publicly traded securities or property with value over $5,000, additional appraisal and Form 8283 Section B rules may apply. See IRS Form 8283 instructions.

Reporting details and forms to expect

• Schedule A (Form 1040): report the charitable deduction if you itemize.
• Form 8283: required for noncash contributions greater than $500. Publicly traded securities over $5,000 do not generally require a qualified appraisal, but Form 8283 still documents the gift.
• Charity acknowledgement: required for any single contribution of $250 or more. For noncash contributions, the acknowledgement should describe the property and state whether you received goods or services.
• Broker statements: keep trade confirmations and transfer receipts. If you sold shares and then donated cash, you’ll get a Form 1099‑B for the sale and may have capital gains to report.

(Authoritative IRS instructions for these forms are available on irs.gov.)

Example — how the math works

Scenario: You bought 100 shares of Company X at $10 (cost basis = $1,000). Shares trade at $100 now (value = $10,000). You’re in the 24% federal marginal tax bracket and would face a 15% long‑term capital gains rate on sale.

Option A — Sell then donate cash:

• Sell shares: incur capital gains = $9,000 × 15% = $1,350 tax.
• Cash available to donate = $10,000 − $1,350 = $8,650.
• Charitable deduction (cash) reduces taxable income but is limited by cash deduction rules and your ability to itemize.

Option B — Donate shares directly:

• No capital gains tax on the transferred shares.
• If you itemize, you can generally deduct $10,000 FMV (subject to AGI limits).
• Net tax benefit combines the avoided capital gains tax plus the deduction’s value; the direct gift typically gives a larger net benefit to both you and the charity.

This simplified example illustrates why direct stock gifts often outperform selling then donating. Exact savings depend on your tax bracket, capital gains rate, and whether you can use the full charitable deduction.

Special situations and pitfalls

• Closely held or restricted stock: Gifts of privately held company stock are more complicated (transfer restrictions, valuation issues, potential unrelated business taxable income) and may require a qualified appraisal and legal review. See our guide: Charitable Giving of Closely Held Stock: Steps and Risks.
• Donor‑Advised Funds (DAFs): DAFs accept securities and generally treat donations like gifts to public charities (30% AGI limit for appreciated securities). A DAF can be a good option when the recipient charity can’t accept securities directly. See also: Giving Through Stock: A How‑To Guide for Donors.
• Retirement accounts: Donating stock inside an IRA is not the same as transferring securities; required minimum distributions (RMDs) can be given directly to charity as Qualified Charitable Distributions (QCDs) from IRAs, but those must be cash distributions and have specific rules. Securities inside IRAs typically must be distributed first or liquidated by the custodian.
• Standard deduction vs itemizing: If you take the standard deduction, you won’t get the charitable deduction benefit on your tax return. Bunching gifts or using a DAF can help taxpayers who normally standard‑deduct.

Common mistakes to avoid

• Selling before donating: Sellers realize gains and pay tax, reducing the potential gift.
• Not confirming tax‑exempt status: Gifts to non‑qualified organizations are not deductible.
• Skipping documentation: Failure to obtain written receipts, broker records, and to file Form 8283 when required can trigger IRS disallowance of the deduction.
• Ignoring AGI limits and carryforwards: Plan large gifts across years or use giving vehicles to maximize tax benefits.

Practical tips for maximizing impact

• Give long‑term appreciated public securities for the best combination of FMV deduction and capital gains avoidance.
• Coordinate with your CPA or financial advisor before executing large gifts to manage AGI limits and carryforwards.
• Use donor‑advised funds if the recipient charity can’t accept securities or if you want to separate the tax event from the grant timing.
• Keep good records: confirmation of transfer, charity acknowledgement, Form 8283 if needed, and the original purchase records for your basis.

Recordkeeping checklist

• Charity’s name and EIN (or evidence it’s a qualified 501(c)(3)).
• Broker transfer confirmation showing date and number of shares transferred.
• Written acknowledgement from the charity (required for gifts ≥ $250).
• Copy of Form 8283 (if filed) and any appraisals (if applicable).
• Your purchase history showing cost basis and holding period.

Further reading and internal resources

• Giving Through Stock: A How‑To Guide for Donors — practical steps to execute a securities gift: https://finhelp.io/glossary/giving-through-stock-a-how-to-guide-for-donors/
• Giving Stock vs. Cash: Tax and Practical Considerations — compare outcomes to decide which route to use: https://finhelp.io/glossary/giving-stock-vs-cash-tax-and-practical-considerations/
• Documenting Charitable Contributions: Receipts, Substantiation, and IRS Rules — for detailed receipt and substantiation requirements: https://finhelp.io/glossary/documenting-charitable-contributions-receipts-substantiation-and-irs-rules/

Authoritative sources

• IRS — Charitable Contributions: https://www.irs.gov/charities‑non‑profits/charitable‑contributions
• IRS — Form 8283, Noncash Charitable Contributions (instructions): https://www.irs.gov/forms‑instructions/form‑8283
• Consumer Financial Protection Bureau — Donating to Charity: basics and red flags: https://www.consumerfinance.gov/consumer‑tools/charitable‑giving/

Professional disclaimer

This article is for educational purposes and reflects common federal tax rules as of 2025. It is not legal, tax, or investment advice. Your situation can change the results — consult a qualified CPA, tax attorney, or financial advisor before making significant charitable gifts.