Summary: Donating appreciated stock rather than cash lets you support your causes, eliminate capital gains taxes on the appreciation, and receive a deduction on the full market value. We show how a high-earning NJ couple donating $20,000 in stock with $10,000 in gains could produce $11,174 in combined tax benefits. We then discuss how to do a direct transfer to the charity or a set up a donor-advised fund.
Charitable giving doesn’t have to be limited to just cash
Donating appreciated stock directly to charity helps you avoid capital gains tax on the appreciation while receiving a tax deduction based on the market value of your assets. To donate, simply notify your broker to transfer shares to the charity’s brokerage account, or use a donor-advised fund (DAF).
Donating appreciated stock or other assets can help you support a cause you believe in, reduce capital gains taxes, and receive tax deductions for your donation.
How to quantify the expected tax savings of donating appreciated stock
We like to illustrate concepts through simple, tangible examples.
Imagine you and your spouse live in NJ and make a combined $620,000 a year. You file your taxes as Married, Filing Jointly.
- Your Federal marginal income tax rate is 35%
- Your State marginal income tax rate is 8.97%
- Your long term capital gains rate is 20%
- Because you are fortunate enough to be considered a high-earning household, you also owe an additional 3.8% NIIT on any investment income such as capital gains.
You and your spouse enjoy being an active part of the community by supporting your local charitable organizations each year with $20,000 in donations.
Let’s say you made a smart $10,000 bet on an individual stock a few years ago which has now doubled to $20,000. You’d like to sell out of this position to capture these gains. But selling out will result in more than $2,380 in capital gains taxes ($10,000 in capital gains * (20% capital gains rate + 3.8% NIIT).
$2,380 isn’t that much in the grand scheme of things for a couple making $620k a year, but it’s still something that would be better to offset than to pay out of pocket.
We believe in paying the taxes you owe, but we also like to help clients figure out how to avoid leaving an additional cash tip with the IRS – especially when those funds can be given to causes that are important to our clients.
Instead of selling out your position, you can donate your stocks instead. By donating this $20,000 of appreciated stock to a qualified organization, you can:
- Support your causes and charities: You are still directly giving $20,000 to your desired charitable organizations.
- Eliminate $2,380 of capital gains taxes: Qualified charitable organizations do not pay capital gains on donated stocks and securities.
- Get ~$8,794 in tax deduction benefits: If you’re itemizing your donations, you will be able to deduct the full $20,000 stock donation (i.e. inclusive of the gains) from your gross income. At a combined federal and state margin rate of 43.97%, this comes out to almost $8.8k in tax benefits.
You’ve now turned a $2,380 capital gains tax bill into an incremental $11,174 of optimized charitable impact ($2,380 saved cap gains + $8,794 tax deduction benefits).
How to donate stocks to charities
So you’re sold on the idea of donating some of your appreciated stock this year. How do you do it?
Give Directly
Some organizations will allow you to donate stocks and other securities directly. Just ask the charities you support if they’ll accept these kinds of donations and what their preferred steps are.
Set up a Donor-Advised Fund (DAF)
We feel one of the more flexible options is to set up a Donor-Advised Fund at a bank or brokerage firm which allows you to flexibly gift your assets to the fund whenever you’d like while keeping those funds invested within the DAF. You can then distribute your funds in the form of a check directly from the DAF whenever you want to provide your donation. Speak to a licensed advisor if you’d like to learn more about the pros and cons of using DAFs to manage your charitable giving.
Beware the fine print
You’ve made it this far and are ready to donate to your charity. Make sure you coordinate with your tax or financial advisor to get the final details right.
- Holding period matters. You must have held the stock for more than one year to deduct its full fair market value. If held one year or less, your deduction is limited to your original cost basis, not the appreciated value.
- Paperwork. Donations over $500 require IRS Form 8283. Larger or non-publicly-traded gifts may also require a qualified appraisal.
- Deduction ceiling. Appreciated stock donations to public charities are deductible up to 30% of your adjusted gross income (20% for private foundations). Anything above that carries forward up to five years.
- New 2026 floor and rate cap. Starting in 2026, the first 0.5% of your AGI in charitable giving isn’t deductible at all (a floor, not a ceiling), and for top-bracket taxpayers, deductible dollars are valued at a 35% rate rather than your actual 37% bracket rate — even though the 30%/20% ceiling above still applies. Net effect: the tax benefit shrinks somewhat, but the stock-donation strategy still beats donating cash.
Need help with your charitable giving strategies?
If you’re working through a charitable giving strategy or want to understand how tax optimization fits into your broader financial picture, feel free to reach out to me for a free consultation.
Nathan
Founder & Lead Advisor
[email protected]
Disclosures:
This content is for educational purposes only and is not investment, tax, or legal advice. Employees and clients of Kangpan & Co. may hold positions in securities discussed in this post. Speak with a licensed tax, legal, or financial advisor before making any changes to your investments or financial strategies. Past performance is no guarantee of future returns. Investing involves risk including the loss of capital.