Gifting appreciated securities is one of the most effective and tax-efficient forms of charitable giving. This blog post will discuss the two primary benefits you enjoy by utilizing this strategy and show you the steps you’ll need to take. In addition, we’ll review a few other important caveats you’ll need to know.
What is Appreciation?
Appreciation in a security’s value—whether it’s a stock, bond, or mutual fund—simply means an increase in price since you purchased it. When you sell a stock¹ that has gained in value, you’re required to pay capital gains tax on the increase (calculated as fair market value minus purchase price). The capital gains tax rate depends on both how long you’ve held the stock and your overall income level, with rates ranging from 0% to 23.8%².
Why Gift to Charity?
Benefit #1: When you make a gift of appreciated stock to charity, you avoid paying capital gains tax on the appreciation. The charity, as a nonprofit, also doesn’t pay any capital gains tax when it sells the stock, so 100% of your gift goes directly to support the cause, with none going to taxes.
Benefit #2: You’re eligible for an income tax deduction based on the full fair market value of the stock at the time of the gift. For instance, if the stock is worth $50,000, you receive a $50,000 tax deduction. However, the IRS limits the amount of charitable deductions you can claim in a single tax year.
Tax Deduction Limitations
Consider a scenario where your income in 2024 is $100,000, and you gift $100,000 in stock to your alma mater. Based on IRS rules, you can only deduct up to 30% of your Adjusted Gross Income (that’s line 11 on your individual income tax return). Income of $100,000 x 30% = $30,000. You would show this $30,000 on your list of itemized deductions, reducing your taxable income to $70,000. But you gifted stock worth $50,000! The remaining $20,000 deduction carries over to future tax years, allowing you to deduct it over the next five years if necessary. It’s essential that you or your CPA track any remaining carryover for future use—neither the IRS nor BentOak Capital does this.
This strategy also provides a valuable opportunity to rebalance your portfolio or reduce reliance on a single large holding with minimal tax impact, all while supporting a cause you care about.
Gifts of appreciated stock must come from a taxable investment account, such as a brokerage or non-qualified account. IRA-held stocks aren’t eligible for this strategy; gifts from an IRA follow different rules.
Gift to Charity: How to Begin Gifting Appreciated Securities
First, make sure your favorite charitable organization, church, hospital, or university is eligible to receive tax-deductible charitable contributions³. If you or a family member has previously set up a Donor Advised Fund (DAF), that is also a qualified charity and can be an excellent place to gift your appreciated stock.
Second, in order to accept a gift of stock, the charity will need a brokerage account and should be able to provide its account number and other necessary information. Provide that information to a BentOak Capital advisor, and we can handle the transfer process for you.
Third, make sure to communicate with the charity to confirm receipt of the stock. They should provide you a written acknowledgement of receipt. Keep that acknowledgement for when you file your taxes.
Lastly, you will need to fill out an IRS form 8283 which details the gift; this form is filed with your taxes.
If you intend to wait until the end of the year to make a charitable gift like this, it’s best not to delay until December 31, as unintended backups and delays can happen.
Summary
For those already charitably inclined, gifting appreciated stock is a tax-efficient way to support causes you care about while enjoying significant tax benefits. This strategy can be especially beneficial in high-income years, though it may be less impactful in years with lower income. If this interests you, reach out to a BentOak Capital advisor to discuss your situation. We also encourage collaborating with your CPA to ensure full alignment on your tax planning.
1 – For the remainder of this blog, I’ll use the word “stock” instead of security simply because most charitable gifts of appreciated securities are in fact gifts of stock, plus more people know what a “stock” is as compared to a “security”, plus I’m not being paid by the number of letters I type. Just keep in mind that bonds, shares of mutual funds, exchanged traded funds, and more count as securities and can be gifted in the same manner.
2 – Technically the capital gains tax rates are 0%, 15%, and 20% but the 2010 Affordable Care Act added a 3.8% “surcharge” (also known as a tax) on realized capital gains if the seller’s income is over $200,000 single or $250,000 married. This effectively creates capital gains tax tiers of 0%, 15%, 18.8%, 20%, and 23.8%. Also technically, the surcharge is on “net investment income” and encompasses more than simply realized capital gains but I’m writing an explanatory blog post not a book.
3 – What you want is an organization recognized by the IRS as tax-exempt under section 501(c)3 of the Internal Revenue Code. If in doubt, consult one of the online databases like the IRS search tool, Guidestar or Charity Navigator, or ask the charitable organization for a copy of their IRS determination letter. Donations to certain organizations like political parties, campaigns, and action committees do not qualify for the same tax benefits described here.
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This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Securities offered through LPL Financial, Member: FINRA/SIPC. Investment advice offered through BentOak Capital, a registered investment advisor and separate entity from LPL Financial.
