Search Submission
Barbara Benware

Donating Appreciated Publicly Traded Securities to Charity

by Barbara Benware
Vice President—Investment Oversight and Risk


Download a PDF of this article

Donating Appreciated Stock to Charity

For philanthropically-minded investors, publicly traded appreciated stock can be among the most tax-advantaged items to donate to charity. Contributing such assets may enable the donor to enjoy a current year tax deduction and potentially eliminate capital gains tax liability on the sale of the asset while allowing the charities they support to receive the most money possible.

What Is Appreciated Stock?

Appreciated securities are investments that have increased in value from the time they were purchased, and can take the form of publicly traded stock, ETFs, closely held stock, or mutual funds. For example, if a stock was purchased for $30 per share and sold for $50 per share, the stock has appreciated by $20 per share. When appreciated stock is sold, the owner generally realizes capital gains equal to the appreciation and may be liable for either short-term or long-term capital gains taxes, depending on the length of time the investment was held.

Charitable Tax Planning Opportunity: Donate Shares of Appreciated Stock to Charity

Taxpayers who are considering current year charitable contributions and are also facing long-term capital gains taxes on appreciated stock that they have held for more than a year can realize a much more favorable income tax result and charitable impact by making a timely donation of the appreciated stock directly to charity. If a donor sells the stock first and then donates the cash proceeds to charity, the donor may be subject to capital gains taxes on the proceeds from the sale of the stock. But if a donor contributes appreciated stock held for more than one year directly to a donor-advised fund account at Schwab Charitable™ or another public charity, the donor can usually deduct the fair market value of the donation without realizing any capital gain.

Note that donated publicly traded partnerships—in particular master limited partnerships ("MLPs")—are an important exception to the typical fair market value deduction for long-term gain securities, as the charitable deduction must be reduced by the amount of ordinary income that would have been realized if the property had been sold at fair market value on the date contributed. For MLPs with substantial accumulated depreciation, this can greatly reduce the charitable deduction. Additionally, if the partnership carries debt (often the case with MLPs), the donor may be liable for taxes.

Hypothetical Example (assuming investment has been held for more than a year)

  Sell stock and donate net proceeds (cash) to charity Donate stock to Schwab Charitable donor-advised fund account
Current fair market value of securities

1,000 shares @ $55 per share* = $55,000

1,000 shares @ $55 per share* = $55,000

Federal long-term capital gains tax paid (20%) Assumes a cost basis of $5,000 and long-term capital gains of $50,000

$10,000

$-

Charitable contribution/deduction

$45,000

$55,000

Value of charitable deduction§ Assumes donor is in the 39.6% federal income tax bracket

$17,820

$21,780

Total donor tax savings (value of deduction less capital gains tax paid)

$7,820

$21,780

With a direct donation to charity or a donor-advised fund account, the donor’s federal income taxes are reduced by an additional $13,960 and the charity receives $10,000 more.

*This value is hypothetical, for illustrative purposes only, and does not account for possible valuation discounts due to restrictions on the shares, if any. It should not be used in connection with considering whether to buy, sell, or hold appreciated securities.

†Assumes cost basis of $5,000, that the investment has been held for more than a year and that all realized gains are subject to the 20% federal long-term capital gains tax rate. Does not take into account any state or local taxes, or potential Medicare net investment income surtax.

‡Assumes no restrictions on the sale of the contributed shares. If there are restrictions, the value of the deduction will be reduced. Certain federal income tax deductions, including the charitable contribution, are available only to taxpayers who itemize deductions, and may be subject to reduction for taxpayers with adjusted gross income (AGI) above certain levels. In addition, deductions for charitable contributions may be limited based on the type of property donated, the type of charity, and the donor’s AGI. Charitable contributions to public charities of capital gain property held for more than one year are usually deductible at fair market values. Deductions for capital gain property held for one year or less are usually limited to cost basis.

§Assumes donor is subject to the 39.6% federal tax. Does not take into account state or local taxes. Certain federal income tax deductions, including the charitable contribution, are available only to taxpayers who itemize deductions, and may be subject to reduction for taxpayers with adjusted gross income (AGI) above certain levels. In addition, deductions for charitable contributions may be limited based on the type of property donated, the type of charity, and the donor’s AGI.

Timing of Your Donation and Other Considerations

  • In order to realize the significant tax savings from the charitable donation of appreciated stock, donors must transfer the appreciated stock held for more than one year directly to a donor-advised fund or to another charity and should not sell the stock.
  • Donors should not enter into any arrangement that would legally compel the recipient charity to dispose of the stock upon receipt. This kind of "pre-arranged sale" could reduce or eliminate the tax benefits to the donor of making the donation.
  • If the stock to be donated is or will be held in a Schwab brokerage account and the donor wishes to transfer it to an existing donor-advised fund account at Schwab Charitable, this can be facilitated online and processed within a day. If the donor does not currently have a charitable account, one can be opened within 24 hours.
  • Upon receipt of the stock, Schwab Charitable controls the sale process. The policy is generally to sell contributed securities promptly, but Schwab Charitable reserves the right to sell at any time.
  • Schwab Charitable can accept restricted stock, including stock subject to a lock-up agreement, but such restrictions may impact the valuation of the stock for charitable deduction purposes.
  • Donating appreciated stock held for one year or less or depreciated stock does not have the same tax advantages as donating appreciated stock held for more than one year. Donors who hold such stock should consult their tax advisors prior to contributing it to charity.

About the Author:

Barbara oversees Schwab Charitable's investment and complex gift acceptance programs and is responsible for its enterprise risk management. Barbara joined Schwab Charitable in 2009, following an 18-year tenure as a wealth management executive. Most recently, she served as Vice President of Planning & Investments and Chief Compliance Officer for Union Square Investment Company, an SEC-registered investment advisory firm. Earlier in her career, Barbara held numerous management roles in finance and product management capacities in the telecommunications industry. Barbara holds a degree in economics from American University.