Donating Appreciated Securities: A Smart Strategy for Tax-Efficient Giving

When it comes to charitable giving, even high-net-worth individuals may believe you can't be generous and make a big impact while maximizing tax opportunities, but with savvy financial planning, you may not have to choose.

One of the most powerful, yet often overlooked, ways to do that is by donating appreciated securities instead of cash. This simple shift can reduce your tax bill, increase your charitable impact, and help you diversify your portfolio—all at once.

In this article, we’ll cover how donating appreciated securities works, why it’s such a tax-efficient strategy, and how to execute it properly with tools like donor-advised funds.

What Are Appreciated Securities?

Appreciated securities are investments—such as stocks, mutual funds, or ETFs—that have increased in value since you purchased them.

For example, let’s say you bought $20,000 worth of company stock several years ago, and today it’s worth $50,000. If you were to sell the stock, you’d owe capital gains tax on the $30,000 gain.

But if you donate that stock directly to a qualified charity, you can avoid the tax burden altogether and still receive a charitable deduction for the full $50,000 fair market value (assuming you are itemizing deductions).

Why Donating Appreciated Securities Is So Tax-Efficient

Making charitable donations with highly appreciated stock or other securities can be significantly more advantageous than donating cash. Here’s why:

1. Avoid capital gains tax

When you donate a long-term appreciated security (held for more than one year), you eliminate the long-term capital gains tax that would have been due if you sold it.

Depending on your income level and state, this could save you up to 20–37% in combined federal and state tax liability. To break that down:

• Federal capital gains tax rates range between 15-20%
• State capital gains tax rates range between 0%-13.3%, depending on your state of residence.
• Capital gains are also taxed an additional 3.8% for Net Investment Income Tax / ACA

2. Get a deduction for the full fair market value.

You can typically deduct the full fair market value of the security on your tax return—up to 30% of your adjusted gross income (AGI)—when donating to a public charity.

3. Increase your charitable impact.

Because you’re giving the full, untaxed value of the asset, the charity receives more money than if you sold the asset first and donated what remained after taxes.

4. Rebalance your portfolio.

Donating appreciated securities can also help reduce concentrated positions in your portfolio. It’s a way to realign your investments with your long-term strategy while supporting causes you care about.

Example: Comparing Cash vs. Appreciated Stock Donations

Let’s return to that $50,000 stock example

In this scenario, donating the appreciated stock directly allows you to avoid $6,000 in taxes, claim a larger deduction, and increase the impact of your donation by $6,000—all without spending any additional cash or adding an unnecessary “tip” to your tax payment to Uncle Sam.

How to Donate Appreciated Securities

There are a few ways to donate appreciated securities, depending on your giving goals and the complexity of your situation.

1. Donate Directly to a Charity

Many large nonprofits can accept gifts of appreciated stock directly. You’ll typically:

• Contact the charity’s development office to request transfer instructions (they’ll provide their brokerage information).
• Ask your financial advisor or custodian to transfer the shares from your brokerage account to the charity’s account.
• Receive a charitable contribution receipt for the fair market value of the securities on the date of the transfer.

This approach works best if you plan to make a one-time or annual gift to a specific organization.

2. Use a Donor-Advised Fund (DAF)

For many high-net-worth families, a donor-advised fund (DAF) offers more flexibility and administrative simplicity.

A DAF acts like a charitable investment account. You can contribute appreciated securities, take the full tax deduction in the year of the contribution, and then direct donations to your favorite charities over time.

Here’s how it works:

1. Open a DAF at a sponsoring organization such as Fidelity Charitable, Schwab Charitable, or the community foundation of your choice.
2. Transfer your appreciated securities directly into the DAF.
3. Claim a tax deduction for the full fair market value of the securities in that tax year.
4. Invest and grow the assets inside the DAF tax-free according to your risk tolerance.
5. Distribute grants to qualified charities whenever you’re ready—immediately or over several years.

A DAF is particularly useful if:

• You want to bunch charitable deductions in one year (for example, in a high-income year or before retirement) to take advantage of the tax savings.
• You’re not yet sure which charities you want to support.
• You’d like to involve family members in future giving decisions.

3. Use a Charitable Remainder Trust (CRT)

If you’d like to support charity while retaining an income stream, a Charitable Remainder Trust (CRT) can be an excellent way to donate appreciated securities.

A CRT is an irrevocable trust that allows you to contribute assets—such as appreciated stock, mutual funds, or other investments—without triggering immediate capital gains tax.

The trust sells the assets tax-free, reinvests the proceeds in a diversified portfolio aligned with your risk tolerance, and then pays you an income for life or for a set term of years. When the trust ends, the remaining balance goes to one or more charities you’ve chosen.

Benefits of donating appreciated stock through a CRT:

• Avoid immediate capital gains tax. When you transfer appreciated securities to a CRT, the trust—not you—sells the assets. Because the trust is tax-exempt, no capital gains tax is due at the time of sale.
• Receive lifetime income. You (or another designated beneficiary) receive regular income payments from the trust, typically a fixed percentage of its annual value.
• Get a partial charitable deduction. You receive an immediate income tax deduction for the present value of the charitable portion of the gift—the amount projected to remain for the charity at the end of the trust term.
• Support your long-term giving goals. When the trust terminates, the remainder passes to the charitable organizations or donor-advised fund of your choice.

Timing and Eligibility Rules for Gifting Appreciated Securities

Before making a gift of appreciated securities, keep these rules in mind:

• Hold the asset for at least one year. To qualify for the full fair market value deduction, the security must be a long-term capital asset. If held for less than a year, the deduction is limited to your cost basis.
• Itemize your deductions. Charitable deductions only apply if you itemize rather than take the standard deduction.
• Mind the AGI limits. Deductions for gifts of appreciated securities to public charities are generally limited to 30% of your AGI (versus 60% for cash gifts). Any excess can typically be carried forward for up to five years.
• Document everything. Obtain a written acknowledgment from the charity and keep records of the transfer for your tax files.

Strategic Uses for Appreciated Securities

High-net-worth individuals often integrate appreciated security donations into a broader financial or tax strategy. A few examples:

• Annual giving: Make tax-efficient contributions each year using your most highly appreciated assets.
• Windfall years: Offset a large income event (e.g., sale of a business, vesting of stock options) by bunching multiple years of charitable giving into one large donation.
• Legacy planning: Use a DAF to create a long-term giving strategy involving children or grandchildren.
• Portfolio management: Reduce exposure to a concentrated stock position that’s grown too large without triggering taxes.

Coordinating With Your Advisory Team

While donating appreciated securities can be straightforward, it’s smart to coordinate with your financial advisor, CPA, and estate planning attorney for proper tax planning and to ensure you’re maximizing the benefit.

For example:

• Your wealth advisor can help identify which holdings make the most sense to gift and rebalance your portfolio afterward.
• Your CPA can calculate the tax implications and confirm deduction limits.
• Your estate attorney can incorporate charitable gifting into your broader legacy or trust strategy.

The Bottom Line

Donating appreciated securities allows you to support causes you care about while enhancing your tax efficiency and portfolio management, but there are complexities and risks to going it alone.

By giving the asset directly—rather than selling it first—you can receive two huge tax benefits: avoiding capital gains tax, and claiming a full fair market value deduction, all while giving more to the organizations that matter to you.

Whether you make gifts directly or through a donor-advised fund or trust, thoughtful planning can help turn your generosity into a lasting impact.

Ready to turn your generosity into a lasting legacy? Schedule a no-obligation Private Strategy Session with Plancorp’s fiduciary advisors to explore how charitable giving can elevate your financial plan.