Why donating appreciated assets can increase charitable value

Donating appreciated assets is a tax‑efficient way to turn an unrealized gain into a larger charitable gift. When you give long‑term appreciated property (owned more than one year) directly to a qualified public charity, you typically:

  • avoid realizing capital gains taxes on the appreciation, and
  • claim a charitable income tax deduction equal to the asset’s fair market value (FMV), subject to IRS limits.
    This combination often produces a higher net gift to the charity than selling the asset and donating the cash after paying capital gains tax.

In my practice advising high‑net‑worth and mid‑career clients, I’ve seen the greatest benefit when donors hold highly appreciated, low‑basis assets (publicly traded stock, privately held shares, or real estate) and donate directly instead of selling.

(For IRS rules on donating property and valuation requirements, see IRS Publication 526 and related guidance: https://www.irs.gov/charities-non-profits/charitable-contributions and https://www.irs.gov/charities-non-profits/valuing-donated-property.)

How the math usually breaks down (simple example)

Imagine you bought stock for $10,000 that’s now worth $30,000. If you sold it, you owe capital gains tax on $20,000. At a combined federal and state effective capital gains rate of ~20% (for illustration), you’d pay $4,000 in tax and could donate $26,000.
If you donate the stock directly instead, you give the full $30,000 and — assuming you itemize and meet IRS limits — claim a $30,000 charitable deduction. The charity receives 15% more money; you also keep a larger tax deduction.

Step‑by‑step: How to donate appreciated assets

  1. Identify eligible assets. Long‑term appreciated property includes publicly traded stocks, mutual funds, bonds, privately held stock, certain business interests, and real estate (not inventory or property held primarily for sale).
  2. Confirm charity qualification. To claim an income tax deduction for the donated FMV, the recipient must be a qualified 501(c)(3) public charity (not a political organization or most private foundations). Check the IRS exempt organization search.
  3. Transfer the asset directly. For marketable securities, instruct your broker to transfer shares to the charity’s brokerage account. For real estate or complex assets, contact the charity’s gift officer first — many charities require pre‑approval and have donation acceptance policies.
  4. Document the gift. Obtain a contemporaneous written acknowledgment from the charity. Complete IRS Form 8283 for non‑cash gifts over $500; for property valued over $5,000 (generally excluding publicly traded securities) you’ll usually need a qualified appraisal and additional reporting (see IRS guidance and Form 8283 instructions: https://www.irs.gov/forms-pubs/about-form-8283).
  5. Claim the deduction. Report the donation on Schedule A when you file. Work with your tax advisor to apply AGI limitations (discussed below).

Key IRS rules and limits (what to watch for)

  • FMV vs. basis and holding period: For long‑term appreciated property donated to a public charity, you generally can deduct FMV (not your cost basis) if you owned the asset more than one year. Short‑term assets (held ≤1 year) are deductible only at basis. (IRS Pub. 526)
  • AGI limits: Gifts of appreciated capital‑gain property to public charities are generally limited to 30% of your adjusted gross income (AGI) in the year of the gift. If you exceed the limit, excess may be carried forward up to five years. Different limits apply for gifts to certain private foundations and for ordinary‑income property. (IRS Publication 526)
  • Reporting: Noncash contributions > $500 require Form 8283. Non‑publicly traded property > $5,000 typically requires a qualified appraisal (exceptions exist). Real estate donations can trigger additional environmental or title review costs. (Form 8283 instructions)
  • Capital gains avoidance: By transferring the asset directly to the charity, you do not recognize the gain and thus generally owe no capital gains tax on the appreciation.

Common vehicles and when to use them

  • Direct gift to a public charity: Best for straightforward tax efficiency with marketable securities or when the charity can accept and use the asset.
  • Donor‑Advised Fund (DAF): Gift appreciated assets to a DAF to lock in the FMV deduction now and recommend grants later. DAFs are especially useful when you want the immediate tax benefit but prefer to pace your giving. See our guide to donor‑advised funds for setup and strategy (Donor‑Advised Funds: How They Work: https://finhelp.io/glossary/donor-advised-funds-how-they-work/).
  • Charitable Remainder Trust (CRT): A CRT can convert illiquid appreciated property into an income stream while providing a partial charitable deduction today — useful for high‑value real estate or business interests. See our article on charitable remainder trusts (Using Charitable Remainder Trusts for Income and Impact: https://finhelp.io/glossary/using-charitable-remainder-trusts-for-income-and-impact/).

Practical strategies and timing considerations

  • Bunching gifts: Combining several years of planned gifts into one year (via a DAF, for example) can help you exceed the standard deduction threshold and get the full benefit of charitable deductions.
  • Use securities that have large unrealized gains but low cost basis. These deliver the biggest tax‑efficiency when donated.
  • Coordinate with taxable events. If you expect a high‑income year or plan to realize gains, donate appreciated assets before realizing large capital gains to offset tax exposure.
  • For real estate, confirm the charity’s ability to accept and manage the property — some charities sell donated properties immediately; others require historical or conservation restrictions.

Documentation, appraisal and valuation: avoid surprises

  • Keep broker transfer records and a written charity acknowledgment (date, description of property, statement of FMV and whether any goods/services were provided).
  • For securities traded on an active market, FMV is typically the average of high and low market price on the date of contribution. For real estate and collectibles, use a qualified independent appraiser, particularly when a Form 8283 Section B is required.
  • Failing to secure required appraisals or to complete Form 8283 can cause the IRS to deny or limit your deduction and may lead to penalties.

Common mistakes and red flags

  • Donating assets the charity cannot accept. Always confirm acceptance policies in advance.
  • Forgetting to transfer the asset directly. Selling first and donating cash often reduces the overall gift because of capital gains taxes.
  • Improper valuation or missing Form 8283 for large gifts.
  • Assuming state tax treatment mirrors federal rules — state limits and deductions vary.

Real‑world examples (short)

  • Marketable stock: Donor A bought shares for $2,000 that are now worth $50,000. She transfers the shares to a public charity; the charity sells them without tax, and the donor claims a $50,000 FMV deduction (subject to AGI limits).
  • Vacation home: Donors B and C donate a vacation home to a charity that will use or sell it. They must obtain an appraisal, clear title issues, and follow the charity’s acceptance steps; they avoid capital gains taxes on the appreciation.

Frequently asked questions

Q: Do I always need an appraisal?
A: No — publicly traded securities have market prices, so a separate appraisal is not required. Appraisals are usually required for non‑marketable property valued over $5,000 (see IRS Form 8283 instructions).

Q: Can I donate stock and still get income from it?
A: If you want income, consider a charitable remainder trust or retaining some shares while donating others. A CRT pays you (or your beneficiaries) and eventually gives the remainder to charity.

Q: What if I only want to donate part of an appreciated asset?
A: You can gift a portion of a holding (e.g., part of a stock position) by transferring the number of shares you choose. For unique assets like real estate, partial interests are more complex and require legal review.

Action checklist (what to do this year)

  • Inventory appreciated positions and estimate unrealized gains.
  • Confirm recipient charities’ 501(c)(3) status and acceptance policies.
  • Talk to your CPA or tax advisor about AGI limits and timing.
  • If donating nonmarketable property, obtain a qualified appraisal early.
  • Coordinate transfers with your broker or legal counsel to ensure proper documentation and filing of Form 8283.

Professional note and disclaimer

In my work advising donors and families, the most effective gifts combine charitable intent with tax planning: thoughtful timing, appropriate vehicle selection (direct gift, DAF, CRT), and careful documentation. This article is educational and not individualized tax advice. For personalized guidance, consult a qualified tax advisor or estate planning attorney who can review your assets, tax situation, and state rules.

Sources and further reading

If you’d like, we can walk through a sample calculation using your own holdings to estimate the tax‑savings and net charitable impact.