Gifting highly appreciated stock is arguably the most effective way to give to charity while maximizing the tax benefits. By gifting appreciated stock you can maximize your tax benefits which may help you build more wealth in the long term and therefore more ability to give. This is especially valuable when used in conjunction with a Donor Advised Fund (DAF).
Highlights
- If you have both cash and securities to give you can gift the securities and re-purchase the stock with your cash, effectively stepping-up your cost basis.
- A Donor Advised Fund is a helpful vehicle for this type of tax planning.
- This strategy can be effective in assisting investors with concentrated positions in the company they work for diversify those positions.
As always, these strategies are for general education only and do not account for anyone’s personal financial objectives, goals, and situation. I try to get the facts correct, but it is entirely possible I am missing something. Also, tax laws and regulations change often. When applying these strategies make sure to do your own research and consider consulting with a professional. You can view my disclaimer here.
Read on for a detailed strategy of how to maximize tax benefits by gifting highly appreciated stock:
A Brief History of Charitable Deductions
In 1917, only a few years after the income tax had been established, congress added a provision to deduct contributions of cash or property to public charities. This deduction applied to charities “operated for religious, scientific, or educational purposes or for the prevention of cruelty to animals or children.” Since then, this deduction has endured and generally been expanded over the years.
People have been giving money to help others since ancient times. The bible is full of stories of people donating their wealth. The patriarch Jacob, blessed by God with great wealth says, “…And of all that you give me I will give a full tenth to you.” (Genesis 28:22) Many of the industrialists of the 19th century spent the later years of their lives giving their fortunes away. And of course this continues today. In 2023 Americans from all walks of life gave $557 billion to charity according to Giving USA!
Philanthropy in and of itself is of course a good thing irrespective of the potential tax benefits. By using the tax code to maximize your tax savings, you could potentially have even more funds available to give away over your lifetime.
Gifting highly appreciated stock is arguably the most efficient way to give to charitable causes while maximizing the tax benefits. There are limits and rules to this that are important to understand. As always, make sure to do your own research and consider consulting with a credentialed tax advisor before applying these strategies to your personal situation.
The Basic Rules and limits as of 2025
In order to benefit from charitable giving you must itemize deductions. In 2025 the standard deduction is $15,000 for single filers and $30,000 for married filing jointly filers. So, in order to benefit from the charitable deduction for gifting your highly appreciated stock your total itemized deductions including mortgage interest, up to $10,000 of state and local taxes, and the charitable contribution itself must add up to more than the standard deduction.
If you find yourself short of the standard deduction you could consider bunching multiple years of charitable giving into one year. A Donor Advised Fund (DAF) can help with this. (More on DAF’s below.) Assuming you have the shares available you could make two years worth of donations this year. You would then plan to take the standard deduction next year.
Donating appreciated stock will give you a tax deduction based on the market value of the stock at the time of the donation even if your cost basis in the stock is very low. The charitable organization can sell the stock without paying a capital gains tax.
Stock contributions of your long term holdings are subject to a 30% of AGI limit. (Stock held less than a year has a higher 50% limit.) For example, if your AGI in 2025 is $100,000 you would be limited to deducting $30,000 of long-term gain stock that year. You are allowed to carry forward excess deductions for up to five years.
Cash contributions have a higher limit of 60% of AGI. These cash contribution limits are scheduled to be reduced from 60% to 50% of AGI in 2026 unless extended
Donor Advised Fund
In my opinion the Donor Advised Fund (DAF) is one of the better financial products in recent history. A Donor Advised Fund is a structure that lets you contribute cash or other assets (appreciated stock!) and receive an immediate tax deduction. You can then recommend grants from the fund to the charity of your choice. It is important to note that your grant recommendation is a request and the DAF charitable organization itself has final say on where the funds are donated.
In between the time that you make the contribution and recommend the grants the funds are invested in a portfolio inside the fund. Generally you will have discretion to choose investments from among a menu of equity, fixed-income, and cash options similar to the investment options in a 401k.
Most of the large custodians have a DAF including Schwab, Fidelity, and Vanguard. These custodians will accept most liquid securities such as stocks and bonds. While there are some custodians that may accept alternative assets such as Bitcoin and other cryptocurrencies I am not familiar enough with these to comment.
The beauty of the DAF is that you can separate the timing of your giving from the timing of your tax savings. In a year that you had a windfall such as the sale of a business, your employer going public, or significant equity compensation appreciation, you could donate for the tax deduction in that year and then grant funds to your charities over the next several years as needs and opportunities arise.
How This works:
This example assumes you have a specific amount you would like to donate, have the cash on hand to donate, and will itemize deductions this year.
- Determine your charitable intentions. This is the most important part of the process. While the tax benefits are helpful the tax savings alone will not make this a worthwhile endeavor. Ideally having an idea of the amounts you may want to contribute over the next few years is ideal.
- Determine how much you would like to contribute for the tax benefits this year. In this step the important considerations are around your tax planning goals. Do you need to put aside multiple years worth of giving in order to itemize deductions?
- Choose the stock (or other asset) you would like to donate and contribute it directly to the charity or into a Donor Advised Fund.
- If you would like to retain a position in the stock you just donated you can immediately repurchase it through your broker using your cash on hand (that you otherwise would have donated if you hadn’t donated the stock.) You now have the same equity position you had prior to the donation, but are in a better tax position when and if you sell that stock in the future. If your portfolio and DAF are held at the same custodian you may be able to do these transactions simultaneously.
- If you are using this as part of a diversification strategy for a concentrated stock position then take the opportunity to purchase other securities in accordance with your diversification plan. You now have a more diversified portfolio with a better tax position than you had prior to the donation.
The results of this are the same (as far as how much the charity gets and your net worth immediately after the transaction) as if you had given cash to charity except in this case you have also eliminated the capital gain in your stock. When you sell the re-purchased or diversified shares in the future you will not have to pay tax on that portion of the gain. That is the potential wealth-building aspect of the strategy.
Other Considerations:
There is no advantage to donating stocks that have an unrealized loss. You would be better off selling the stock and donating the proceeds in cash.
If you won’t give enough each year to itemize consider bundling donations. A DAF can assist with this.
Gifting highly appreciated securities can be especially helpful while diversifying concentrated employer stock positions. Gift employer stock each year and instead of re-purchasing it, purchase other securities according to your diversified investment strategy.
Do you have questions on charitable giving strategies? Do you have a concentrated position in the company you work for and are trying to figure our the best way to manage that risk? I’d love to hear from you. Contact me. I try to answer as many reader emails as possible.
Further Reading
IRS Publication 526 – Charitable Contributions
Congressional Research Service – A history of the charitable deduction
Donor Advised Funds – Information on DAFs from the IRS
Donor Advised Funds Schwab – Information from Schwab on DAFs
