Can I Donate Stock to Charity?

The answer is yes, and there are benefits for both donor and recipient

Reviewed by Margaret James
Fact checked by Yarilet Perez

Donating stock to charity can benefit both the donor and the recipient organization. Many organizations, including hospitals, schools, and various nonprofits, accept charitable donations of stocks or securities as gifts.

The advantages of donating stock, especially if it has appreciated in value, can include a larger contribution to the charity, potential tax savings, and the ability to avoid capital gains tax.

Key Takeaways

• Many nonprofits, including hospitals, schools, and other organizations, will accept stock as a gift or donation.
• Donating stock can be more beneficial than donating cash because it allows the donor to avoid capital gains taxes and may result in a larger tax deduction.
• If the stock has appreciated in value, donating it directly to charity is typically more advantageous than selling it and donating the proceeds.
• Most charitable organizations will convert the donated stock into cash immediately.
• Depending on the recipient organization and your adjusted gross income (AGI), the donation may be eligible for tax deductions.

Tax Benefits of Donating Stock to Charity

If the stock has increased in value since the purchase, the owner can avoid paying capital gains tax by donating the security to a qualified charitable organization. When an appreciated security held for at least a year is donated to a charitable organization, its fair market value may be itemized as an income tax deduction. The resulting tax savings could be factored in to make a larger donation.

For publicly traded shares, the fair market value is the average of the high and low price on the transfer date. For private company stock, which is not traded publicly, donations with an estimated value below $5,000 do not require an appraisal. As with donations of publicly traded stocks, the donor is required to fill out Internal Revenue Service (IRS) Form 8283.

Example of Tax Savings on Donated Stock

Suppose you bought 100 shares of XYZ Corp. two years ago at $20 per share for a $2,000 cost basis (100 x 20 = 2,000). If XYZ now trades at $50 per share, the fair market value of your 100 shares has risen to $5,000 (100 x 50 = 5,000).

If you sold the stock and donated the proceeds, you would owe taxes on the capital gain—the difference between the current market value and your cost basis.

• Capital gain: $5,000 – $2,000 = $3,000
• Capital gains tax at the long-term rate of 20%: $3,000 x 0.20 = $600

After selling the stock and paying the taxes, you would be left with $4,400 to donate. However, if you donate the stock directly to the charity, the organization receives the full $5,000 value of the donation, and you are eligible to claim a $5,000 tax deduction, within certain limits.

What a Year Will Buy

Donating stock held for less than a year changes the tax benefits. For stocks held less than a year, the gain is taxed as ordinary income (not at the lower capital gains rate), and the deduction for the donation is limited to your cost basis (the original amount you paid for the stock, not the appreciated value).

Limits on Tax Deductions for Donated Stock

The IRS imposes limits on how much you can deduct for noncash donations, including stock. These limits are generally based on a percentage of your adjusted gross income (AGI). The percent calculations below do not pertain to taxpayers who made total contributions equal to 20% or less of their AGI.

50% of Adjusted Gross Income

Stock donations to specific types of qualifying organizations may be deducted up to 50% of the AGI limit. Examples of these types of organizations include but are not limited to:

• Churches or associations of churches.
• Educational organizations.
• Hospitals or certain medical research organizations.
• Private operating foundations.

Noncash contributions made to a qualifying organization are subject to a 50% limit of your AGI. This limit is also reduced by your cash contributions limited to a different 60% limit.

Note

A 30% limit of AGI applies to noncash contributions of capital gain property if you figure your deduction using fair market value without reducing for appreciation.

Another exception to the 50% limit pertains to contributions that are “for the use of” the qualifying organization instead of “to” the qualifying organization. Contributions held in a legally enforceable trust “for the use of” the organization is subject to either a 20% or 30% limit.

30% of Adjusted Gross Income

There are two 30% limits for donations:

1. Capital gains property donations (like appreciated stock) to qualifying organizations.
2. Other noncash donations to organizations not on the qualifying list or donations made “for the use of” a qualifying organization.

Both of these 30% limits are reduced by any donations you make to organizations with a 50% limit (such as churches or hospitals). However, the two 30% limits are applied separately, so the total amount you can donate under the 30% limit will never exceed 50% of your Adjusted Gross Income (AGI).

Donating noncash property (other than capital gain property) to an organization not on the qualifying list is subject to the 30% limit. This limit can be further reduced if your total donations to 50% limit organizations take up part of that 30% limit.

20% of Adjusted Gross Income

If you make noncash contributions of capital gain property during the year to certain types of qualifying organizations (not included in the list above) or “for the use of” any qualified organization, your deduction is the lower of:

• 20% of your AGI.
• 30% of your AGI minus all contributions subject to the 30% of AGI limit.
• 30% of your AGI minus all capital gain contributions subject to the 30% of AGI limit.
• 50% of your AGI minus all contributions subject to the 60%, 50%, or 30% limits.

Why Donate Stock Instead of Cash?

There are several reasons why donating appreciated stock is more advantageous than donating cash:

Maximize Charitable Giving: By donating stock, you can give more to the charity than if you sold the stock and donated the proceeds. The charity can immediately liquidate the stock and use the full value for its mission.

Avoid Capital Gains Taxes: If you sell appreciated stock, you’ll owe taxes on the capital gain. Donating the stock directly allows you to avoid paying those taxes, and the charity receives the full value.

Tax Deduction Benefits: Donating appreciated stock can result in a larger tax deduction because you can claim the stock’s fair market value rather than just your original purchase price.

Potential for Lower Capital Gains Taxes in the Future: By donating appreciated stock, you can reset your cost basis for future investments. This means that if the stock continues to rise in value, you’ll pay less capital gains tax when you sell it later.

Ease of donation:  Instead of making multiple donations to different charities, you can use a donor-advised fund (like those from Fidelity or Schwab). This lets you transfer all the stock you want to donate to the fund in one easy step, take a full tax deduction right away, and decide later which charities will receive the donation—without a deadline.

Important

Organizations equipped to receive stock donations often have a donation form for donors to complete. This form contains information on the broker, the shares, and the donation.

How to Donate Stock to Charity

There are a few ways to donate stock to charity, and it’s important to ensure that the recipient organization can accept the donation. Many charities are set up to receive stock gifts, but you’ll need to provide specific information for the transfer.

Through a Donor-Advised Fund (DAF)

One of the easiest ways to donate stock is through a donor-advised fund (DAF). This allows you to donate the stock to the fund, take an immediate tax deduction, and then decide later which charities will receive the funds. Major investment firms like Fidelity Charitable and Schwab Charitable offer DAFs.

Direct Donation to the Charity

If you want to donate directly to a charity, you’ll need to contact the charity and find out if they can accept stock donations. If they can, they may have a donation form for you to complete, which will include details like:

• Your information (name, address, account number)
• Stock details (number of shares, company name)
• Recipient information (charity’s name, IRS EIN number, and brokerage account details)

Physical Certificates

If you hold stock in physical certificate form, you’ll need to sign the back of the certificate in the presence of a guarantor, which is usually the bank or broker, to transfer ownership. Once these things are completed, the stock becomes non-negotiable and thus transferable.

The transfer is done through your brokerage account if the stock is held electronically. Most brokerage accounts insist on written and signed authorization with specific instructions on the transfer.

Transferring Stocks Between Institutions

If you transfer stocks between different brokerage firms (e.g., from your personal account to a charity’s account), you’ll need to work with your brokerage firm and the receiving institution to ensure the transfer is completed smoothly.

When Not to Donate Stocks

If a stock is trading for less than what you paid for it, it’s usually better to sell and donate cash to charity. This allows you to record the loss as deductible on future tax returns.

It’s also best to avoid donating equity in publicly traded partnerships, including master limited partnerships. The fair market value of such donations is reduced by the value of accumulated depreciation that would have been subject to income tax at the time of sale. In addition, donors may be subject to taxation based on debt carried by the partnership.

The receiving organization must be able to receive the stock donation; in most cases, the organization will then immediately liquidate the stock to use the proceeds toward its mission. For this reason, stocks with liquidity traded on public exchanges are much more favorable than private, locked, illiquid stocks.

Can I Donate Any Stock to Charity?

Most charities accept publicly traded stock, but not all organizations can accept private company stock or other non-liquid assets. It’s important to confirm with the charity that they can receive the specific type of stock you’re donating.

Why Should I Donate Stock Instead of Cash?

You should donate stock instead of cash because you can donate more money that way. If you sold the stock and then donated the cash, you would likely first have to pay a 15% or 20% tax on any long-term capital gains that the sale generated, depending on your tax bracket.

Is It Difficult to Donate Stock to Charity?

Donating stock to a charity is easier if you do it through a donor-advised fund. You put all the stock you want to donate into the fund and take an immediate tax deduction for the total. Later, with no set deadline, you can advise the fund on where the stock should go and which charities.

How Do I Claim a Tax Deduction for Donating Stock?

You must donate the stock directly to a qualified charitable organization to claim a tax deduction. The stock’s fair market value on the date of donation can be deducted from your income taxes, subject to certain limits based on your adjusted gross income (AGI).

The Bottom Line

Some of your favorite nonprofit or charitable organizations may be able to accept stock donations. These types of donations are often made to avoid capital gains taxes and maximize the benefit a donor can give to an organization. There are tax deduction rules around what you can report on your taxes, and the organization must have a brokerage account to receive the stock.