7. Charitable Contributions of Appreciated Stock

We have already discussed cash donations through a QCD, but there is another powerful and overlooked way for retirees to give to charity and receive a significant tax benefit: donating appreciated stock.

How It Works

Let’s say you bought 100 shares of a stock many years ago for $1,000. Today, those same shares are worth $10,000. If you were to sell the stock, you would have a $9,000 long-term capital gain and would owe capital gains tax on that profit.

However, if you donate those shares directly to a qualified charity instead of selling them, you get a double tax benefit:

1. You can generally take a charitable deduction for the full fair market value of the stock on the day you donate it—in this case, $10,000 (provided you itemize).

2. You do not have to pay any capital gains tax on the $9,000 of appreciation.

This strategy allows you to give more to the charities you care about while simultaneously eliminating a tax bill for yourself. It is one of the most efficient ways to be philanthropic if you have investments that have grown in value.

Important Rules

To get this benefit, you must have held the stock for more than one year. You must also transfer the shares directly to the charity’s brokerage account. Do not sell the stock first and then donate the cash, as this will trigger the capital gains tax you are trying to avoid. Your financial advisor or brokerage firm can help you with the transfer process. As with any large donation, be sure to get proper documentation from the charity.