Appreciated Stock Donation

An appreciated stock donation is a charitable contribution of what Internal Revenue Code section 170(b)(1)(C)(iv) calls capital gain property, meaning "any capital asset the sale of which at its fair market value at the time of the contribution would have resulted in gain which would have been long-term capital gain." Shares of stock or fund holdings are the commonest example, which is why the everyday name is a stock donation, but the same rules reach real estate, a closely held business interest, and other long-held capital assets. The tax result has two parts. The deduction is measured at market value rather than at cost, and because the shares are transferred rather than sold, the appreciation is never realized by the donor and is not taxable to the exempt recipient either.

Read the statute's form of the rule rather than the shorthand, because the shorthand handles the edge cases wrongly. Section 170(e)(1)(A) does not say that short-term property is deductible at basis. It says the contribution "shall be reduced by ... the amount of gain which would not have been long-term capital gain" had the property been sold at market value. Framed that way the rule scales correctly. A position with a small amount of short-term gain attached is reduced by that amount rather than being knocked all the way down to cost, and property that would produce ordinary income on sale, such as inventory or a work of art created by the donor, is reduced by the whole built-in gain.

The holding-period boundary is exact and it decides everything. Long-term means held more than one year, so a position held exactly one year or less is reduced to basis, and a sale on the first anniversary is still short-term. Donating a 364-day position captures none of the benefit this page is about, and is worse than the alternatives, because selling it at least produces a gain the donor controls the timing of, or a loss they can use.

The mirror image is the loss position, and it is the most common avoidable mistake in this area. Donating shares worth less than they cost wastes the loss entirely: the deduction is capped at market value, and no capital loss is available to the donor or to anyone else. The correct sequence for a losing position is the reverse of the one for a winner. Sell the shares, claim the capital loss, and donate the cash.

Four things defeat the arrangement, and the fourth is new. The first is the holding period above. The second is the identity of the recipient. Appreciated property given to a private foundation is generally deductible only at the donor's cost basis under section 170(e)(1)(B)(ii), with a narrow exception for qualified appreciated stock under section 170(e)(5), and it is subject to a lower income ceiling. So the standard advice to give appreciated shares does not transfer to a foundation, and combining the two is the single most expensive error available here.

The third is the income ceiling. Under section 170(b)(1)(C)(i), contributions of capital gain property to a public charity are limited to 30 percent of the donor's contribution base, which section 170(b)(1)(H) defines as adjusted gross income computed without regard to a net operating loss carryback. The same sentence adds an ordering rule that catches people out: these contributions "shall be taken into account after all other charitable contributions." A donor who has already given a large amount of cash may have no room left for the stock gift this year even though 30 percent sounds generous. Excess above the ceiling carries forward, under section 170(b)(1)(C)(ii), as capital gain property "in each of the 5 succeeding taxable years in order of time."

The fourth is a new floor, and it lands on exactly the wrong gift. Section 170(b)(1)(I), added by the 2025 tax law and effective for tax years beginning after 2025, allows an itemizer's charitable contributions "only to the extent that the aggregate of such contributions exceeds 0.5 percent of the taxpayer's contribution base." So a slice at the bottom of the total simply produces no deduction. What makes this worth knowing is the statutory stacking order in the same subparagraph. The floor is applied first against contributions to which subparagraph (D) applies, which is capital gain property given to a private foundation, and second against subparagraph (C), which is capital gain property given to a public charity. Cash to a public charity, under subparagraph (G), is reached sixth and last. A donor who gives both stock and cash in the same year therefore loses the non-deductible slice out of the stock deduction, which was the more valuable dollar because it also avoided a capital gain. Anything written before mid-2025 describes a system with no such floor in it.

The floor and the ceiling do not behave the same way afterward. A ceiling excess carries forward for five years. An amount disallowed by the floor generally does not: section 170(d)(1)(C) is headed "Contributions disallowed by 0.5-percent floor carried forward only from years in which limitation is exceeded," and it preserves floor-disallowed amounts only where a percentage ceiling was also exceeded in the same year. For most donors, whose gifts sit well inside the ceilings, the floor amount is simply lost. The two limits are applied within one year's computation and their sequencing there is a matter for the return preparer, but the difference in what survives the year is the part a donor needs to know.

One election exists and it is broader than it looks. Section 170(b)(1)(C)(iii) lets a donor elect to reduce capital gain property to basis in exchange for the higher 50 percent ceiling. It applies "to all contributions of capital gain property" made during the year, so it is all-or-nothing rather than a per-gift choice, and it reaches backward: prior-year carryovers from years without an election are recomputed as if the election had applied when they were made. It is occasionally the right answer for a donor with a very large gift and a modest income, and it is almost never right for anyone else.

The mechanics matter as much as the tax rule, because the benefit is destroyed by doing it in the wrong order. The donor instructs their broker to transfer the shares in kind to the charity's brokerage account. There must be no sale first. Selling and then donating the proceeds is a taxable sale followed by a cash gift, which produces a different and worse result. The deduction date is the date of the transfer, which for a slow broker-to-broker move or a mailed certificate can straddle a year end, so a gift intended for a particular tax year needs to be started well before December 31. For publicly traded shares, fair market value is conventionally the mean of the high and low trading prices on the transfer date.

A hypothetical example, using round numbers. Ingrid has held 400 shares for six years. She paid $10,000 for them and they are now worth $50,000. Her adjusted gross income for the year is $120,000, and she itemizes. She transfers the shares to a public charity. Her contribution is measured at $50,000, and the $40,000 of appreciation is never recognized by her or taxed to the charity. The 30 percent ceiling limits what she can deduct this year to 30 percent of $120,000, which is $36,000, and the remaining $14,000 carries forward for up to five years as capital gain property. The 0.5 percent floor applies to her gift as well, taking 0.5 percent of her $120,000 contribution base, or $600, out of the deductible total; this example isolates the ceiling, and because Ingrid is a donor whose percentage limitation is exceeded, section 170(d)(1)(C) preserves the floor-disallowed amount in her carryforward rather than losing it. Had she instead sold the shares and donated the cash, the $40,000 gain would have been taxable in the year of sale, and the charity would have received $50,000 only if she made up the tax from other money.

A second hypothetical, showing the floor's stacking order. Devi has a contribution base of $200,000 and gives $10,000 of long-held stock plus $10,000 of cash to public charities. The floor removes 0.5 percent of $200,000, which is $1,000, from her deductible total. Because the statute reaches capital gain property before cash, that $1,000 comes out of the stock gift rather than the cash gift. Both are deductions of the same size on their face; the one the floor eats is the one that also carried the untaxed gain.

The appraisal rule is worth stating in the right order, because the reader's own gift is the exception. Section 170(f)(11)(A)(ii)(I) exempts publicly traded securities from the qualified appraisal requirement at any amount. So a gift of listed shares or mutual fund shares, however large, needs no appraisal. Form 8283 is still required for noncash gifts above $500, and the appraisal requirement above $5,000 does apply to property that is not publicly traded, such as shares in a private company, real estate or art. That $5,000 threshold bites per item or per group of similar items, aggregated across all the charities given to in the year, so a year of clothing and household donations split between three organizations can cross it while no single gift does.

None of this reaches a filer who does not itemize. The deduction described here is an itemized deduction, and most households take the standard deduction instead. The separate deduction for non-itemizers at section 170(p) is cash only, capped at a fixed $1,000, or $2,000 on a joint return, limited to public charities, and expressly unavailable for a supporting organization or for funding a donor-advised fund. So a non-itemizer who transfers appreciated shares gets the second benefit, in that the gain is still never realized, and no deduction at all for the value.

Pros

• Produces a deduction at full market value while the embedded gain goes permanently unrealized, which is two benefits from one transaction.
• Works even for a donor whose deduction is capped, because the unrealized gain benefit does not depend on the deduction.
• The charity receives the whole position rather than the position net of tax.
• No appraisal is needed for publicly traded shares at any size of gift.
• Excess above the annual ceiling carries forward for five years, so a large single gift is not wasted.

Cons

• Only available to itemizers, so most households get no deduction from it.
• The 30 percent ceiling is lower than the ceiling for cash, and it is applied after other contributions, which can leave less room than expected.
• The new 0.5 percent floor takes its bite out of these gifts before it touches cash gifts, and floor-disallowed amounts generally do not carry forward.
• Giving to a private foundation instead usually reduces the deduction to cost basis, so the advice does not generalize across recipient types.
• Requires a real transfer of shares, which takes time and paperwork and can slip past a year end.
• Small charities may be unable to accept securities directly, which adds a step.