Supporting your favorite charities is about making a difference — but that doesn’t mean you can’t also enjoy some valuable tax benefits. If you donate long-term appreciated stock instead of cash, you could significantly increase your tax savings.
Why It’s More Than Just a Deduction
Appreciated publicly traded stock held for more than one year qualifies as long-term capital gains property. When donated to a qualified charity, it can generate two powerful tax advantages:
- Charitable deduction: If you itemize, you can deduct the stock’s full fair market value.
- Capital gains avoidance: You skip the capital gains tax you’d owe if you sold the stock yourself.
This strategy can be especially beneficial if you’re subject to the 3.8% net investment income tax (NIIT) or the 20% top long-term capital gains rate.
How the Strategy Works
Consider this example:
You donate $15,000 of stock that originally cost you $5,000. Your ordinary income tax rate is 37%, and your long-term capital gains rate is 20%. You also itemize deductions.
- If you sold the stock, you’d owe $2,000 in capital gains tax on the $10,000 gain, plus $380 in NIIT.
- By donating the stock instead, you avoid those taxes and claim a $15,000 deduction.
Your total federal tax savings:
- $2,380 (capital gains + NIIT avoided)
- $5,550 (deduction savings)
= $7,930 saved
If you had donated cash, your savings would have been only $5,550.
Key Things to Remember
Before donating appreciated stock, keep these three important considerations in mind:
1. Itemizing vs. Standard Deduction
Charitable deductions only reduce taxes if your total itemized deductions exceed your standard deduction.
For 2025, the standard deductions are:
- $15,750 for singles and married filing separately
- $23,625 for heads of households
- $31,500 for married couples filing jointly
2. Deduction Limits on Appreciated Property
Donations of long-term capital gains property have stricter limits:
- Up to 30% of your AGI for public charities
- Up to 20% of your AGI for non-operating private foundations
(Compared to 60% and 30%, respectively, for cash donations.)
3. Don’t Donate Depreciated Stock
If your stock is worth less than your purchase price, sell it first to claim the capital loss, then donate the cash proceeds to charity.
A Smart Year-End Tax Strategy
If you plan to itemize on your 2025 tax return, making charitable gifts by December 31 can lower your taxable income. Donating appreciated stock you’ve hesitated to sell — due to potential taxes — can be an especially savvy year-end move.
Want to explore ways to minimize capital gains tax or maximize your charitable deductions? Contact your tax advisor today for personalized guidance.
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