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Why Donating Appreciated Stock Makes Financial Sense

May 28, 2025

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Smart charitable giving isn’t just about deciding where to donate—it’s also about how you donate. For investors with appreciated securities in their portfolio, donating stock directly to charitable organizations instead of cash can create a win-win scenario that maximizes both tax benefits and philanthropic impact.

At Greater Houston Community Foundation, we regularly work with donors who discover that donating appreciated stock can be one of the most financially savvy ways to make a difference in their community while aligning with their overall philanthropic financial planning goals.

Whether you’re a high-net-worth donor looking to level up your charitable giving or a professional advisor looking to convey this message to clients in a way that resonates, Greater Houston Community Foundation can help. Keep reading to hear real stories about donors who benefited from using appreciated stocks to support their favorite charities, or get in touch with Greater Houston Community Foundation at 713-333-2210 to get started.

Key Insights

  • Donating appreciated stock directly to charity allows you to avoid capital gains tax while still receiving a tax deduction for the full fair market value.
  • You can deduct the fair market value of the donated stock from your taxable income, up to certain limits (e.g., 30% of your Adjusted Gross Income (AGI)).
  • For stocks held more than one year, donors can generally avoid paying capital gains taxes on the stock.
  • Combining stock donations with a donor advised fund offers immediate tax benefits and the flexibility to support multiple charities over time.
  • Donating appreciated securities provides an opportunity to rebalance your investment portfolio without triggering tax consequences.
  • Greater Houston Community Foundation simplifies the process of donating appreciated stock by providing clear transfer instructions and working alongside your financial and tax professionals.

Table of Contents

Is it better to donate appreciated stock?

Donating appreciated stock offers significant advantages over selling the securities and donating the proceeds. When you sell appreciated stock, you trigger capital gains tax on the growth, potentially reducing the amount available for charitable giving by 20% or more. 

By contrast, donating the stock directly to charity allows you to avoid capital gains tax while still receiving a charitable giving tax deduction for the full fair market value of the securities (provided you’ve held them for more than one year). This approach can be particularly beneficial during years with higher income or when you’re looking to rebalance your portfolio and limit the tax consequences.

We’ve put together three simple examples to help illustrate the benefits of giving appreciated stock.

Ellis & Ari Wilder: $100,000

Ellis and Ari plan to give $100,000 to their donor advised fund at Greater Houston Community Foundation (Foundation) to organize their giving for the calendar year. Let’s assume Ellis and Ari have a combined adjusted gross income of $600,000, which puts them in the 35% federal income tax bracket. If they gave $100,000 in cash to their donor advised fund, they could potentially realize an income tax savings of $35,000.

What if instead of a cash donation, they have held appreciated, publicly-traded stock valued at $100,000, with a cost basis of $20,000. By donating this stock instead of cash, Ellis and Ari may save up to $35,000 in income tax and potentially avoid $19,040 in capital gains tax that they would have owed if they sold the stock (assuming a long-term capital gains tax rate of 23.8%). So, it’s easy to see why Ellis and Ari should consider giving highly appreciated stock instead of cash.

Sofia & Mateo Ortiz: $1 Million

Sofia and Mateo Ortiz plan to give $1 million towards early childhood education this year. They will accomplish that by adding $500,000 to their donor advised fund at the Foundation, which they will use to support their favorite charities. They will also make a $500,000 gift to the High-Impact Grantmaking initiative at the Foundation to help address the region’s greatest needs today.

Let’s assume that Sofia and Mateo are in the highest federal income tax bracket because they earn over $1,000,000. If they give $1 million in cash, they could save up to $370,000 in income tax this year or carry the excess deduction forward to take advantage of amounts more than the AGI limits. If they donate appreciated stock instead of cash, assuming a $200,000 cost basis in stock valued currently at $1 million, they would still potentially save up to $370,000 in income tax, and they may also avoid $190,400 in capital gains tax (based on a long-term capital gains tax rate of 23.8%).

Ezra & Alex Bergeron: $5 Million

Ezra and Alex, both 65 years old in the 35% tax bracket, plan to give a target amount of $5 million to charity as the cornerstone of their overall philanthropy plan. They would like to use publicly-traded stock that they have held for many years, valued currently at $5 million. They would love to explore establishing a charitable remainder trust, which could potentially allow them to receive an income stream for life from these assets and avoid capital gains tax, and the remaining assets would flow into their donor advised fund.

In this case, we will explore a charitable remainder trust that pays out an income stream to Ezra and Alex while they are both living and then to the survivor for the survivor’s lifetime. 

If the stock has a very low-cost basis–just $500,000–because the Thomases have held it for so long. Depending on the IRS’s applicable rates, and assuming a 5% annual payout rate paid at the end of each quarter, an approximate tax result that may help Ezra and Alex establish a charitable remainder trust includes:

  • $1,491,350 in approximate potential income tax deduction based on the present value of the gift of the remainder interest to charity, saving approximately $571.292 in income taxes this year.
  • $4,500,000 in gains. This could save capital gains taxes of $1,071,000.
  • Annual payments of 5% of the value of the assets in the trust, which means the income stream will fluctuate depending on the value of the trust assets.
  • Based on the Bergerons’ life expectancy, they would receive $9,717,252 over their lifetime.
  • An anticipated trust balance of $6,943,450 would ultimately be split between the two funds based on the Bergerons’ life expectancy and the growth of the value of the trust assets.

Following the death of the survivor beneficiary of Ezra and Alex, the remaining assets will flow to the Bergeron Family Fund at the Foundation, which Ezra and Alex have already established and, upon their deaths, will split equally into two funds. The first fund will be a donor advised fund for which their children will serve as advisors, and the second fund is an unrestricted endowment fund to support the Foundation’s priority initiatives in perpetuity.

*These examples are for illustration purposes only. Every client’s situation is different, and therefore, the tax strategy and tax impact will be different for each client. For example, these illustrations are based on federal income tax rates only, and you’ll need to evaluate, among many other factors, the impact of state taxes. We recommend always consulting with a qualified tax professional who can offer guidance tailored to your specific circumstances and objectives.

How does donating appreciated stock work?

The process of donating appreciated stock is typically straightforward, but requires some coordination between your financial institution and the receiving charity. Here’s how it works:

  1. Select the appropriate securities. Identify which appreciated stocks in your portfolio would be most advantageous to donate. Usually, these are securities with the largest unrealized gains and those you’ve held for more than a year.
  2. Contact the receiving organization. Reach out to the charitable organization or community foundation to inform them of your intention to donate stock. The organization can then share its transfer instructions with you or your advisor.
  3. Initiate the transfer. Provide written instructions to your broker or financial advisor to transfer the specified shares directly to the charity’s brokerage account.
  4. Document the donation. Maintain records of the transfer, including the date, number of shares, and fair market value on the date of the transfer for tax purposes.
  5. Report on your tax return. Include the donation on your tax return as a charitable contribution, subject to IRS regulations.

The receiving organization will usually sell the securities upon receipt and use the proceeds to fund their mission or your designated charitable purpose. You can use appreciated stock to fund any number of charitable initiatives, which offers significant flexibility for your overall financial and estate plans. 

What are the rules for gifting appreciated stock?

While donating appreciated stock is relatively simple, some important rules and regulations apply. 

  • Holding periods. To receive a deduction for the full fair market value, you must have owned the stock for more than one year (long-term capital gains treatment).
  • Qualified charitable organizations. The recipient must be a qualified 501(c)(3) organization or other eligible entity to receive tax-deductible contributions.
  • Documentation requirements. For donations valued over $250, you’ll need a written acknowledgment from the charity. For donations over $5,000, additional documentation like a qualified appraisal may be required for noncash assets of securities that are not publicly traded
  • Valuation. The value of your stock donation is determined by the average of the high and low prices on the date of the transfer, not the closing price.
  • Deduction limits. Charitable deductions for appreciated stock are generally limited to 30% of your AGI in the year of the donation, compared to 60% for cash donations. However, excess contributions can be carried forward for up to five additional tax years.

Benefits of donating appreciated stock

Donating appreciated stock is an attractive option for giving for many reasons, some of the most important of which include:

  • Elimination of capital gains tax. By donating stock directly, you avoid paying capital gains tax that would be triggered if you sold the securities first.
  • Full fair market value deduction. You receive a tax deduction for the full fair market value of the stock at the time of donation, not just your original cost basis.
  • Portfolio rebalancing opportunity. Donating appreciated securities allows you to rebalance your portfolio without tax consequences while supporting charitable causes.
  • Preservation of cash. By donating stock instead of cash, you preserve your liquid assets for other needs or investments.
  • Greater charitable impact. The charity receives the full value of your donation without the reduction that would occur if capital gains taxes were paid.
  • Reduction in future estate taxes. Removing appreciated assets from your estate can potentially reduce future estate tax liability as part of your broader estate planning strategy.

How much can you deduct for donating appreciated stock?

The deductible amount for donated appreciated stock is based on its fair market value on the date of the donation, but there are limitations to consider:

  • For stocks held for more than one year:
    You can generally deduct the full fair market value up to 30% of your adjusted gross income (AGI).
  • For stocks held for less than one year (short-term holdings):
    The deduction is limited to your cost basis rather than the current market value, up to 50% of your AGI.

Any deduction amount that exceeds these AGI limitations can be carried forward for up to five additional tax years.* The actual tax benefit depends on your tax bracket, the amount donated, and your overall tax situation. Working with a tax professional and a philanthropic advisor at Greater Houston Community Foundation can help ensure you maximize the potential benefits while complying with all IRS requirements.

*Note: Charitable contribution limits are subject to change pending future tax legislation—including the scheduled sunset of certain TCJA provisions in 2026.

Can you donate appreciated stock to a donor advised fund?

Yes, donating appreciated stock to a donor advised fund (DAF) is not only possible, it’s often more advantageous for donors than funding DAFs with other charitable gift types. Using appreciated stock to fund a DAF allows you to take advantage of both the tax benefits of stock donation and the flexibility that DAFs provide. Some of the biggest benefits offered by this flexibility include:

  • Immediate tax deductions. You receive the same tax benefits as donating directly to a charity—avoiding capital gains tax and getting a deduction for the full fair market value.
  • Strategic timing. You can make the stock donation when it’s most tax-advantageous for you, even if you haven’t decided which specific charities to support.
  • Investment growth potential. The assets in your DAF can be invested and potentially grow tax-free, increasing the amount available for charitable giving.
  • Simplified giving. Instead of coordinating multiple stock transfers to different charities, you can make a single transfer to your DAF and later recommend grants to various organizations.
  • Legacy planning. DAFs are very powerful when incorporated into your legacy giving strategy, and can help carry your charitable intentions well beyond your lifetime.
  • Anonymity. DAFs provide the option to make grants anonymously if desired, while still receiving all other benefits for your contribution.

If you’ve got appreciated securities and philanthropic intentions, combining stock donations with a donor advised fund offers a powerful way to maximize both tax efficiency and charitable impact.

Donating appreciated stock to charity? The Foundation can make it easy. 

Greater Houston Community Foundation specializes in simplifying the process of donating appreciated securities to support the causes you care about. Our team of philanthropic advisors works alongside your trusted financial and tax professionals to create a seamless experience:

  • We offer expert guidance on the tax implications and benefits of donating stocks and bonds.
  • For those interested in more comprehensive solutions, we can help establish and manage funds or explore other giving vehicles.
  • We connect your philanthropy to community needs, helping maximize the impact of your generosity.

While donating appreciated stock offers significant benefits, it’s just one of many strategic giving options. Ready to explore how donating appreciated stock can benefit both your financial planning and your philanthropic goals? Call us at 713-333-2210 or reach out directly to get started.

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