Donating Appreciated Stock: How to Give More and Pay Less

Turning embedded gains into charitable impact—without handing the IRS a windfall

With major stock market indices sitting near historic highs, many investors find themselves with substantial unrealized capital gains in their taxable brokerage accounts. That’s a great position to be in—but it also creates a tax problem. Sell those shares for any reason, and you’ll likely owe capital gains taxes that can eat 15% to 23.8% of the appreciation, depending on your income (not including possible state taxes).

For anyone who’s already charitably inclined, there’s a more efficient path: donating appreciated stock directly to charity. Done correctly, this strategy delivers a double tax benefit—you avoid capital gains tax entirely, and you get to deduct the full fair market value of the gift. With recent changes under the One Big Beautiful Bill Act (OBBBA) reshaping the rules around charitable deductions, the strategy has become both more nuanced and more relevant. This guide walks through how it works, the rules to follow, and the practical steps to execute it without missteps.

Why Cash Isn’t Always King

To understand the power of donating appreciated stock, consider an example. Suppose you bought $6,000 of stock years ago, and today it’s worth $10,000—you’re sitting on $4,000 of embedded capital gains. You want $10,000 to reach your favorite charity.

The Traditional (Inefficient) Route

You sell the shares first, then donate the proceeds. You owe capital gains tax on the $4,000 of appreciation. If you’re a high earner, you might pay the 15% federal rate plus the 3.8% Net Investment Income Tax (NIIT), that’s $752 in federal taxes—before accounting for any state tax drag. The charity receives only the remaining cash, and your itemized deduction is limited to that lower amount.

The Smart Route (Direct Transfer)

You transfer the shares directly to the charity. The charity, as a tax-exempt 501(c)(3), sells the shares tax-free and keeps the full $10,000. You owe nothing in capital gains tax, and you claim a charitable deduction for the full $10,000 fair market value. Same gift, dramatically better tax outcome.

▶ Did You Know? According to the Fidelity Charitable Giving Report, roughly 63% of all contributions to their platform are in the form of non-cash assets like appreciated stock. Savvy donors understand that cash is rarely the most tax-advantageous asset to give.

The Fine Print: Rules That Matter

The IRS rules around appreciated property donations are specific, and missing one can derail the entire strategy. Before initiating a transfer, confirm each of the following:

• One-year holding period: The shares must have been held for more than one year to qualify as long-term capital gain property. If you donate short-term holdings, your deduction is limited to your cost basis—not the fair market value—completely defeating the purpose.

• Fair market value calculation: For publicly traded stocks and ETFs, the IRS values the donation at the average of the high and low trading prices on the date of transfer, not the closing price. For mutual funds, it’s the net asset value (NAV) on the date of transfer.

• Qualified charity required: The recipient must be a registered 501(c)(3) public charity. Gifts to individuals (no matter how needy), political organizations, or non-qualified entities don’t qualify for the deduction.

• Stock must actually be appreciated: If the security has declined in value, this strategy backfires (more on this later).

AGI Limits and the New Rules to Know

The IRS limits how much you can deduct in any single year based on your Adjusted Gross Income (AGI), and the limits are different for appreciated stock than for cash:

• Cash donations to public charities: Deductible up to 60% of AGI.

• Appreciated stock donations to public charities: Deductible up to 30% of AGI.

• Appreciated stock donations to private foundations: Limited to 20% of AGI.

If your AGI is $300,000, you could donate up to $90,000 in appreciated stock to a public charity and deduct the full amount that year. The five-year carryforward is your safety net for gifts exceeding the limit—any excess can be carried forward and deducted over the next five tax years. You don’t lose the deduction, you just spread it over time.

OBBBA also introduced two newer rules that matter, particularly for high-income donors:

• The 0.5% AGI floor: Charitable deductions for itemizers are now subject to a floor equal to 0.5% of AGI. Only the amount that exceeds this floor is deductible in the current tax year (though amounts below the floor can be carried forward).

• The 35% deduction cap for top earners: For taxpayers in the 37% federal income tax bracket, the value of itemized charitable deductions is capped at 35 cents per dollar deducted. Even the wealthiest donors won’t capture the full marginal tax benefit they once did.

How Your Filing Status Changes Your Benefits

A common misconception is that if you don’t itemize, donating stock provides no benefit. Under OBBBA, the rules split into two distinct pathways. Consider a married couple filing jointly with an AGI of $200,000 who wants to donate $5,000 of appreciated stock with a $1,000 cost basis.

Scenario A: The Non-Itemizer

This couple takes the standard deduction. Under OBBBA, non-itemizers can take a permanent above-the-line charitable deduction of up to $2,000 ($1,000 for singles)—but it only applies to cash gifts. If they donate the $5,000 of stock instead, they don’t get an income tax write-off.

But they still win on taxes. By transferring the stock directly, they pay $0 in capital gains tax on the $4,000 of appreciation—saving hundreds of dollars they would have owed if they had sold the stock first. The benefit is real, even without an income tax deduction.

Scenario B: The Itemizer

Now suppose the same couple itemizes. They are subject to the 0.5% AGI floor, which equals $1,000 ($200,000 × 0.005). If they donate $5,000 of appreciated stock, the first $1,000 is absorbed by the floor for the current year. Their allowable current-year income tax deduction is $4,000 ($5,000 – $1,000), with the remaining $1,000 eligible for carryforward.

They get the full double benefit: zero capital gains tax on the appreciation, plus a $4,000 immediate deduction against ordinary income. That’s the textbook outcome the strategy was designed for.

Why More People Will Find Themselves Itemizing

If you haven’t itemized in years, that may be about to change. When the State and Local Tax (SALT) deduction cap was locked at $10,000, nearly 90% of American households defaulted to the standard deduction. OBBBA rewrote this math by raising the SALT cap to $40,400 for married couples filing jointly ($20,200 for separate filers), provided household income is under $505,000 (above this level phaseouts begin).

For homeowners, this reopens the door to itemizing in a major way. With this substantial increase in the SALT limit, combined with your mortgage interest, charitable donations, and other itemized deductions, it is now far more likely that high earners will surpass the standard deduction threshold. While you still have to account for the new 0.5% AGI floor, clearing the standard deduction line means your stock donations can quickly begin generating valuable income tax write-offs on Schedule A.

Donor-Advised Funds (DAFs): The Workhorse

What if your favorite charity can’t accept a transfer of stock? Many smaller nonprofits—local food banks, faith communities, niche causes—simply don’t have brokerage accounts set up to receive securities. That’s where Donor-Advised Funds come in.

A DAF is essentially a charitable savings account. You contribute appreciated stock (or cash) to the fund, claim the full tax deduction in the year of contribution, and then recommend grants from the fund to the charities you choose over time—next month, next year, or over the next decade. Major sponsors include Fidelity Charitable, Schwab Charitable, Vanguard Charitable, and the National Christian Foundation, among others.

▶ Market Impact: According to the National Philanthropic Trust, total charitable assets held in DAF accounts have grown to $251.52 billion—a reflection of how widely this tool has been adopted by tax-conscious donors.

DAFs solve two problems at once. First, they bridge the gap between sophisticated tax planning and charities that aren’t equipped for stock transfers. Second, they unlock a powerful tax strategy called bunching.

Bunching in action: Instead of donating $4,000 in stock every year—and losing a portion of the income tax benefit to the annual 0.5% AGI floor each time—you can bunch five years of giving into a single $20,000 stock donation to a DAF in one tax year. You capture a large tax write-off in Year One, absorb the AGI floor just once, and distribute grants from your DAF to your favorite charities over the following years.

For donors who give annually but in modest amounts, bunching is often the difference between maximizing a deduction and missing out on the income tax benefit entirely.

How to Actually Do It

Executing a stock donation is more straightforward than most people think, but precision matters. The cardinal rule: do not hit the “Sell” button on your brokerage account. If you sell first, the capital gains tax liability is locked in.

• Step 1—Get delivery instructions. Contact your chosen charity or DAF sponsor to confirm they can accept the security. Request their clearing firm name, account number, and DTC (Depository Trust Company) number.

• Step 2—Initiate an in-kind transfer. Log into your custodial platform (Schwab, Fidelity, Vanguard, etc.) and request an “in-kind institutional transfer” of the specific shares to the recipient’s account.

• Step 3—Handle tax reporting. If your total non-cash contributions exceed $500 for the tax year, file Form 8283 with your tax return. Publicly traded stocks, ETFs, and mutual funds are explicitly exempt from the independent appraisal requirements that apply to complex assets like real estate or private business interests.

Most stock transfers settle within a few business days, but year-end timing can be tight. Start the process well before December 31 to ensure the gift is completed in your intended tax year.

Pitfalls to Avoid

Two important traps to steer clear of:

• Considering "loss" stocks. If a security is worth less than its original purchase price, donating the shares directly is generally inefficient. Instead, investors often choose to sell the depreciated stock first to harvest the capital loss. This allows them to use the loss to offset other capital gains or up to $3,000 of ordinary income. They can then donate the cash proceeds, potentially securing both a capital loss benefit and a charitable deduction.

• Beware of prearranged sales. This warning applies specifically if you hold stock in a company that is being acquired or merging with another. If you sign a legally binding agreement to sell your stock—particularly to an acquiring company in an M&A transaction—before initiating the transfer to charity, the IRS may apply the assignment of income doctrine. The result: you get hit with the capital gains tax bill anyway, and the transaction is treated as a cash donation rather than a stock gift. The charity must have genuine discretion over whether to sell or hold the donated shares.

The Bottom Line

With many stock market indices near all-time highs, aligning your portfolio management with your philanthropic goals is one of the smartest moves a charitably inclined investor can make. By shifting away from cash donations and directly transferring appreciated securities, you can potentially preserve capital, bypass unnecessary taxes, and deliver maximum financial power to the causes you care about most.

When you combine the strategy with tools like Donor-Advised Funds and bunching, the multiplier effect on both your charitable impact and your tax savings can be substantial. For investors with significant embedded gains, this is a move worth considering and discussing with your financial advisor or tax professional.

Tad Jakes, CFP®, EA, ECA

Disclaimer: The financial concepts, tax laws, market projections, and strategies referenced in this article reflect current regulations and publicly available data, all of which are subject to change. Financial planning and investment decisions are highly individual and depend on a wide range of personal, financial, and tax-related factors. This content is intended for educational purposes only and does not constitute personalized financial, tax, or legal advice. Please consult a qualified financial advisor, tax professional, or legal counsel regarding your specific situation before executing any strategies mentioned in this article.