Donate Appreciated Securities
If you are going to give, give the stock directly instead of donating the cash proceeds. Selling first and donating cash realizes a capital gain you were never required to realize, and the charity ends up with less. Transferring the shares directly deducts the same fair market value, and the gain simply disappears — the charity is tax-exempt, so nobody ever pays it.
Work a case. You hold $100,000 of stock with a $20,000 basis, and you are in the top bracket in California, so a long-term gain costs roughly 37.1% combined (23.8% federal including NIIT, plus 13.3% state):
Same sacrifice from your balance sheet, and the charity is roughly $30,000 better off — and your deduction is larger too, since it is measured on the full $100,000. There is no version of this where selling first wins.
The one-year line is not a preference, it is the rule. Property held one year or less is not deductible at fair market value at all. Under IRC §170(e)(1)(A), “Certain contributions of ordinary income and capital gain property” your deduction for short-term appreciated property — and for any ordinary-income asset, including inventory and self-created works — is reduced to your basis. Donate a stock you bought four months ago that has doubled and you deduct your original cost basis instead of fair market value. So the sequence matters: give the lots you have held more than a year, and give the ones with the lowest basis, because those carry the most embedded gain for the tax system to forgive.
Two corollaries. Do not donate a position that has fallen below your basis — you would forfeit a deductible capital loss and deduct only the depressed value. Sell it, harvest the loss, and donate the cash. And do not donate short-term positions at all if you can wait; crossing the one-year mark converts a basis deduction into a full fair-market-value one.
What you can give beyond listed securities, and what it costs in paperwork. Most DAF sponsors and larger charities accept privately held C-corporation stock, LLC and partnership interests, pre-IPO shares, restricted stock, real estate, cryptocurrency, and oil and gas interests. These work, and for a founder facing a liquidity event they can be the single largest planning move available — but they are not securities for substantiation purposes, and the difference is expensive:
- Publicly traded securities are exempt from the qualified-appraisal requirement at any value. This is the quiet advantage of giving listed stock: a $5 million gift of Apple needs no appraiser.
- Cryptocurrency is not. The IRS held in CCA 202302012 that crypto is neither cash nor a publicly traded security as Treas. Reg. §1.170A-13(c)(7)(xi) defines the term, so a deduction above $5,000 requires a qualified appraisal — and an exchange price printout does not count. Donors have lost the entire deduction on this point alone.
- Anything closely held needs an appraisal above $5,000, the appraisal itself attached to the return above $500,000, and a donee signature on Form 8283 Section B.
- Retirement assets are the exception that is not a deduction. Giving IRA assets during life means taking a taxable distribution first. Use a qualified charitable distribution instead (section “Give From the IRA After 70½: the QCD”), which never enters your income at all.
Finally, the mechanics. Transfer the shares; do not sell them. Value is the mean of the day’s high and low quoted prices ( IRS Pub. 561), not the exact price at the moment of transfer — mutual funds price once daily, so the rule is moot for them. Report on Form 8283 and Schedule A. Start the transfer well before December 31: a year-end gift is complete when the shares actually leave your account, and brokerage transfer queues in late December are the most reliable way to push a deduction into the following tax year by accident.