Posted May 27, 2026 in Articles
If you want to maximize both your charitable impact and your tax benefits, donating appreciated securities—such as stocks, bonds, or mutual funds—can be more advantageous than giving cash.
Avoid Capital Gains Tax
When you sell an investment that has increased in value, you typically owe capital gains tax on the difference between its purchase price (cost basis) and current value. However, if you donate the asset directly to a qualified nonprofit—and have held it for more than one year—you can avoid this tax entirely. Depending on your taxable income, this tax can be up to 20%. As a result, the full value of the asset goes to support the charity rather than being reduced by taxes.
Receive a Full Fair Market Value Deduction
Donating appreciated securities provides an income-tax charitable deduction equal to the asset’s full fair market value in the year the gift is made. This is often more advantageous than donating cash or short-term assets, where deductions may be limited to cost basis. For example, if you donate stock worth $50,000 that you originally purchased for $20,000, your deduction is based on the full $50,000—not the $20,000 purchase price. As noted above, you avoid paying capital gains tax on the $30,000 of appreciation.
Deductions are subject to IRS limits. Generally, you may deduct up to 30% of your adjusted gross income (AGI) for gifts of appreciated securities. Beginning in 2026, an additional rule applies: deductions are only allowed to the extent they exceed 0.5% of AGI.
For instance, with a $100,000 AGI and a $50,000 donation:
- The 30% cap allows a $30,000 deduction
- The 0.5% rule reduces this by $500
- Resulting deduction: $29,500
- Remaining unused deduction: $20,500
Carry Forward Unused Deductions
Any portion of your deduction that exceeds annual limits is not lost so you can fully realize the tax benefits over time. It can be carried forward for up to five additional years. In each of those years:
- New charitable contributions are applied first
- Remaining carryforwards can then be used
- Each year remains subject to the same AGI limits and the 0.5% rule (starting in 2026)
Option to Increase Deduction Limits
In certain situations, you may elect to deduct an appreciated asset at its cost basis rather than fair market value. While this reduces the amount of the deduction, it allows the gift to qualify for a higher AGI limit—generally up to 50% instead of 30%.
This approach may be beneficial when the asset has relatively modest appreciation or when your total charitable contributions would otherwise exceed the 30% limit. In these cases, the higher limit may allow a greater portion of the gift to be deducted in the current year. Beginning in 2026, all charitable deductions are also subject to a 0.5% of AGI floor.
Reduce Overall Tax Liability
A charitable deduction directly lowers your taxable income, which can reduce your total tax liability or help keep you in a lower tax bracket. It may also help you avoid additional taxes that apply at higher income levels. For example, if you are in the 32% tax bracket, a $50,000 deduction could reduce your taxes by $16,000. In effect, the after-tax cost of your $50,000 gift becomes $34,000.
Rebalance Your Portfolio Efficiently
Over time, strong-performing investments may grow to represent a large portion of your portfolio. Selling them to rebalance could trigger capital gains tax. By donating a portion of these appreciated assets instead, you can reduce concentration risk without tax consequences.
At the same time, you retain flexibility: cash you might have donated can instead be reinvested into a more diversified allocation, strengthening your overall portfolio strategy.
Create income for you and a loved one
Establishing a charitable gift annuity or charitable remainder trust funded with appreciated securities—rather than cash—can provide the tax benefits described above. In addition, it can generate a lifetime income stream for you and a family member, while ultimately supporting the charitable organization you care about.
Conclusion
Donating appreciated securities offers a powerful combination of tax efficiency and philanthropic impact. By avoiding capital gains tax, receiving a fair market value deduction, and managing your portfolio strategically, you can give more effectively than with cash alone.
As with any financial decision, consult your tax and financial advisors to understand how factors such as holding period, deduction limits, and the type of charitable organization may affect your situation. You may also visit our website for more information or contact Constance Karapelou, Senior Director of Gift and Estate Planning, at 216-875-9838 or c.karapelou@csuohio.edu.
