Overview

Donating appreciated publicly traded stock or other long‑term appreciated securities (mutual fund shares, ETFs, certain bonds) is a common tax‑smart philanthropic strategy. Instead of selling an asset and donating the cash, you transfer the asset directly to a qualified charity. The donor typically receives a charitable income tax deduction for the fair market value (FMV) of the asset and avoids paying capital gains tax on the appreciation. This can increase the after‑tax value of the gift and let you give more to the cause you care about.

Why this matters (short version)

  • Charity receives the full market value of the asset when it can be sold by the nonprofit.
  • Donor avoids capital gains tax on appreciation, which preserves more capital for giving.
  • Donor may claim an income tax deduction for the FMV of the donated asset, within IRS limits (see tax limits below).

Authoritative guidance and rules

Key IRS guidance includes Publication 526 (Charitable Contributions) and the Form 8283 instructions for noncash contributions. For up‑to‑date rules on charitable gifts of securities and required substantiation, see IRS Publication 526 and Form 8283 instructions (IRS.gov) — guidance remains in effect through 2025. Also consult the charity for its brokerage instructions and acceptance policy (IRS, Charitable Organizations pages).

How the tax mechanics work (step‑by‑step)

1) Identify eligible assets. The most tax‑efficient candidates are long‑term appreciated securities (owned more than one year). Short‑term holdings, property with ordinary‑income character, or assets sold at a loss have different tax treatment.

2) Transfer in kind. Directly transfer the shares from your brokerage account to the charity’s brokerage account (or to a donor‑advised fund). Don’t sell first — selling triggers capital gains tax. Most charities and DAFs can accept electronic transfers; your broker and the charity will provide transfer instructions.

3) Substantiate and value. For publicly traded securities, the FMV is the average of the high and low on the donation date; a broker’s letter or electronic confirmation typically substantiates the gift. Complete Form 8283 for noncash contributions when the total donated property exceeds $500; if a single non‑publicly traded security exceeds $5,000, a qualified appraisal generally is required (see Form 8283 guidance).

4) Claim the deduction (if you itemize). For long‑term appreciated securities donated to a public charity, you generally may deduct the FMV up to 30% of your adjusted gross income (AGI); amounts exceeding the limit can be carried forward up to five years. If you donate to a private foundation the FMV limit is typically 20% of AGI. Cash gifts to public charities have a higher AGI limit (usually 60% of AGI) — consult IRS Publication 526 for exact limits (IRS Publication 526).

Example calculation

  • You bought stock for $10,000 (cost basis). It’s now worth $30,000 (FMV). If you sell and donate cash, you’d realize a $20,000 capital gain and could owe capital gains tax (federal rate often 15% or 20% depending on income, plus potential NIIT), reducing the net gift.
  • Donate the stock instead. You avoid the capital gains tax on the $20,000 appreciation and can generally deduct the full $30,000 (subject to AGI limits). The charity can sell the stock without owing capital gains tax and receive the full $30,000.

Practical steps and documentation (what I do with clients)

  • Call the charity first. Confirm it can accept securities and get transfer instructions (DTC number, account name, account number, receiving broker).
  • Tell your broker and initiate an in‑kind transfer. Keep screenshots and confirmation emails.
  • Obtain written substantiation from the charity showing the date of transfer and number of shares — save this for your tax records and for Form 8283.
  • If the donation is significant or involves closely held stock, consult a tax advisor and consider a qualified appraisal.

Common scenarios and options

  • Donor‑Advised Funds (DAFs): DAFs are popular for donating appreciated securities because they accept complicated gifts, liquidate assets, and give you an immediate tax deduction while allowing you to recommend grants over time. See our guide: Donor‑Advised Funds: A Practical Guide.
  • Closely held or restricted stock: Valuation and transfer rules are more complex. These gifts often require an appraisal and careful legal and tax review (see Charitable Giving for Entrepreneurs and Charitable Strategies for Giving From Closely Held Businesses).
  • Gifts of mutual fund shares or ETFs: Similar treatment as stocks if the shares were held long term. Check the mutual fund company’s transfer procedures.

Who benefits most

  • Investors with large unrealized capital gains who itemize deductions.
  • Donors seeking to maximize the charitable impact without reducing personal liquidity as much as an equivalent cash gift.
  • Nonprofits that can efficiently liquidate donated securities or that hold investments for mission‑related purposes.

Limits, carryforwards, and pitfalls

  • AGI limits: For gifts of appreciated long‑term capital gain property to public charities, the deduction for FMV is generally limited to 30% of AGI; donations exceeding that limit may be carried forward for up to five years. For gifts to private foundations the limit is generally 20% of AGI. Cash gifts to public charities are generally limited to 60% of AGI. (IRS Publication 526.)
  • Itemizing requirement: You must itemize your deductions (Schedule A) to benefit. After the 2017 tax law raised the standard deduction, fewer taxpayers itemize — check whether itemizing still makes sense for you (see When Itemizing Makes Sense: A Simple Decision Checklist).
  • Timing: The FMV is determined on the date the charity receives the shares (not the date you initiate the transfer). Delays in electronic transfer can affect valuation.
  • Valuation and appraisal rules: Publicly traded securities have straightforward valuation. Closely held securities and some alternative assets require qualified appraisals and additional reporting.

Common mistakes to avoid

  • Selling before donating: This triggers capital gains tax and reduces the size of your gift.
  • Failing to get charity substantiation: You need a contemporaneous written acknowledgement from the charity for any single donation of $250 or more and Form 8283 for noncash donations above $500.
  • Misunderstanding AGI limits: Incorrectly assuming you can deduct the full FMV regardless of AGI limits.

Advanced strategies to consider

  • Bunching: If you’re near the standard deduction threshold, bunch multiple years of charitable gifts (including appreciated securities) into one tax year to maximize itemized deductions.
  • Partial gifts: Use a donor‑advised fund to take the immediate deduction and recommend grants over several years.
  • Estate planning: Donating appreciated securities during life reduces your taxable estate and can be combined with bequests or charitable remainder trusts for income planning.

Valuation, liquidity, and charity preferences

Some charities prefer cash because they have limited capacity to accept or liquidate securities. Larger charities and community foundations typically have brokerage accounts and clear procedures. If you’re donating closely held or thinly traded securities, coordinate earlier and expect longer lead time for appraisal and legal review.

Working with professionals (my recommended checklist)

1) Talk to your tax advisor or CPA to confirm AGI limits and interaction with your broader tax plan.
2) Coordinate with the charity’s gift officer to get proper transfer instructions.
3) Use your broker to initiate an in‑kind transfer; capture transaction receipts and the charity’s acknowledgment.
4) File Form 8283 when required and keep all supporting documents for at least seven years in case of audit.

Internal resources

Regulatory and tax citations

  • IRS Publication 526, Charitable Contributions (see IRS.gov)
  • Instructions for Form 8283, Noncash Charitable Contributions (see IRS.gov)

Final considerations and disclaimer

Donating appreciated stock is a powerful tool in tax‑aware philanthropy, often allowing you to give more at lower after‑tax cost. In my practice, clients who follow the transfer and substantiation steps typically deliver larger net gifts and avoid common IRS pitfalls. This article is educational and not individualized tax or legal advice. Before making significant gifts, consult a qualified tax advisor or estate planning attorney familiar with current 2025 rules and your personal financial situation.