Donating Stock vs. Noncash Gifts: Tax Traps and Rules

Donors who give highly appreciated marketable securities directly to qualified charities do not recognize capital gains and may claim a deduction based on the securities’ fair market value. Gifts can be made directly or routed through donor-advised funds or private foundations, which also preserve the tax advantage when charities sell the shares. Federal law enacted in July 2025 added a limited deduction for cash gifts even for taxpayers who do not itemize: $1,000 for single filers and $2,000 for married couples filing jointly. Tax rules allow deductions for the fair market value of donated property, but documentation and valuation requirements vary by asset type and by how the charity will use the gift.

Advisors favor liquid, marketable securities because they are easier to value and defend in audits. Wesley Karger, co-founder and managing partner at TwinFocus in Boston, noted, “If you’re going to give a car or a boat or a piece of art, there is a more complex appraisal process, and those typically are harder to defend in an audit and tend to come under more scrutiny.” He added that clients seek assets that charities can convert to cash without lengthy valuation disputes.

Appraisal rules for tangible property can reduce or eliminate tax benefits when donors omit required valuations. Benjamin Sunshine, a senior associate in the wills, trusts and estates practice at Brinkley Morgan in Fort Lauderdale, recalled a synagogue that accepted a donated billboard and leased the advertising space for revenue. “It’s easy if they get stock: they sell the stock, and they get the money. But it gets a little bit more complicated when we’re not dealing with assets that are straightforward,” he recalled.

Sunshine noted that donors must generally obtain a qualified appraisal for noncash gifts or risk losing the deduction. He added that the IRS requires a qualified appraisal for cryptocurrency gifts, even though market quotes are readily available.

How a charity handles an asset affects the deduction amount. Colleen Spain, counsel in tax, not-for-profit and corporate practice at Farrell Fritz in Uniondale, New York, explained that when a charity plans to sell an item immediately, the donor’s deduction is limited to the gross proceeds expected from that sale. If the organization plans a “significant intervening use,” such as using a vehicle for program operations, the donor may be able to claim the fair market value.

Advisors recommend donors consult financial and legal counsel before making in-kind gifts. Karger noted many clients prefer to donate appreciated securities or fund donor-advised accounts to simplify valuation and preserve tax advantages. Sunshine warned that failing to secure required appraisals or paperwork can eliminate the deduction.