How Charitable Giving Can Lower Your Capital Gains Tax
Between the stock you have held since the early 2000s and the rental property you inherited from your parents, you are sitting on more unrealized value than you keep in the bank. You already give to your parish every year, usually by check. Lately you have wondered whether there is a smarter way to give from everything else you own, the assets that have grown quietly for years without you ever touching them.
The Piece Most Families Are Missing
Here is the part almost nobody explains clearly. The tax benefit of giving does not come from the asset itself. It comes from how you give it. Write a check for $50,000 and you get one kind of result. Give $50,000 worth of stock or property that you have held for years and that has grown substantially in value, and you often get a better one, because you are removing an asset the IRS has not yet taxed, rather than cash you have already paid tax on.
This is the single biggest gap between what families assume about giving and how the tax code actually treats it. Selling an appreciated asset first and giving the proceeds is almost always the more expensive way to make a large gift.
How the Mechanism Actually Works
The rule applies the same way whether the asset is publicly traded stock, mutual fund shares or real estate, as long as you have owned it for more than one year.
- You transfer the asset itself, not cash, directly to The Orange Catholic Foundation (OCF).
- Because OCF, not you, is the one who eventually sells the asset, you generally do not recognize the capital gain on the appreciation.
- Your charitable deduction is typically based on the asset's full fair market value on the date OCF receives it, not what you originally paid for it.
- Gifts of appreciated property to a public charity are generally deductible up to 30 percent of your adjusted gross income for the year, compared with 60 percent for gifts of cash, with any amount above the limit carried forward for up to five years.
Here is a hypothetical example. Say you hold an asset worth $200,000 that you purchased years ago for $40,000. Sell it first, and you owe capital gains tax on the $160,000 of appreciation before you ever write a check to the parish. Give the asset directly instead, and that tax on the $160,000 gain generally never comes due, while your deduction is based on the full $200,000 value. Your specific result depends on your basis, your holding period and your income, so review the numbers with your accountant before you decide how to give.
Non-cash gifts over $500 require Form 8283 with your return, and gifts over $5,000, other than publicly traded securities, generally require a qualified appraisal. IRS Publication 526 covers the substantiation and recordkeeping rules in full if your accountant wants the underlying text. Donating stock to charity and donating real estate to the church walk through what this looks like for each specific asset, including the paperwork and the timeline for each.
The comparison matters most for donors who give consistently and give generously. A family that gives $10,000 a year in cash and also holds $150,000 in appreciated stock they never touch is, in effect, choosing the more expensive way to give year after year without realizing there was a choice to make. Redirecting even a portion of an annual gift from cash to appreciated shares, where it makes sense for the family's full picture, does not change how much the parish receives. It changes how much the IRS receives instead.
"Shouldn't My Kids Get This Instead?"
This is worth answering honestly, because it is usually the real hesitation behind the tax question. Giving to your parish and providing for your children are not automatically in competition, and the tax code treats them differently in a way that is worth understanding. When a family member inherits an appreciated asset from you, the law generally allows their cost basis to reset to the asset's value at your death, which can eliminate the capital gain that built up during your lifetime.
Cash and less-appreciated assets do not carry that same benefit. For some families, that means the highly appreciated stock or property is actually a more tax-efficient asset to leave to heirs, while cash or a modestly appreciated holding is a more tax-efficient asset to give to the parish now. Whether that arrangement makes sense for your family depends entirely on your full financial picture, so this is a conversation for your accountant or estate attorney, not a rule to apply on your own.
What This Actually Supports
In fiscal year 2024, OCF distributed more than $8 million, with 43 percent supporting Catholic schools and 57 percent supporting parishes, retired priests and other ministries. A gift of an appreciated asset, whether it is a handful of shares or a piece of property, becomes part of that same distribution, reaching a classroom, a parish budget or a retired priest's care in the same way a check would, just with less lost to tax along the way. Ways to Give describes the specific funds a gift like this can be directed toward, from a parish's general needs to a named scholarship.
If you have a spouse or a friend from the parish who has mentioned the same stock or property sitting untouched for years, this is worth a direct conversation with them. Most families only learn that this option exists from someone they already trust.
Your Next Step
If you are weighing which of your assets makes sense to give this year, the fall is a good time to start that conversation, since some transfers take weeks to complete. Schedule a meeting with The Orange Catholic Foundation to review what you hold and how each option compares or call 714-282-3021.
Disclaimer
This information is intended to be general in nature and is not offering professional tax, legal or accounting advice. Please discuss your philanthropic giving with your accountant or other professional advisors. The Orange Catholic Foundation is a 501(c)(3) charitable corporation, Tax ID 33-0934571.
Frequently Asked Questions
Does giving appreciated stock or property really avoid capital gains tax?
Generally, yes, when the asset has been held for more than one year and is transferred directly to a qualified charity rather than sold first. The donor typically does not recognize the capital gain on the appreciation, and the deduction is usually based on the asset's full fair market value. Your specific result depends on your basis, your holding period and your income. Confirm the details with your accountant before you transfer anything.
Is it better to give cash or an appreciated asset?
It depends on what you hold and your full financial picture, but appreciated assets held more than one year often produce a better result than cash for a donor with meaningful unrealized gains, since the capital gains tax on the appreciation is generally avoided. Cash gifts to public charities carry a higher AGI deduction limit, 60 percent compared with 30 percent for appreciated property. Therefore, the better choice can depend on the size of the gift relative to your income. Your accountant can model both scenarios against your specific return.
How much can I deduct if I give an appreciated asset?
Gifts of long-term appreciated property to a public charity are generally deductible up to 30 percent of your adjusted gross income in the year of the gift, with any amount above that limit carried forward for up to five years. This differs from the 60 percent AGI limit that applies to cash gifts, so your accountant can confirm which limit applies to your specific gift.
Do I need to do anything special on my tax return for a gift like this?
Yes. Non-cash gifts over $500 require Form 8283 to be filed with your return, and gifts of most assets over $5,000, aside from publicly traded securities, generally require a qualified appraisal. OCF provides a written acknowledgment of the gift that your accountant will use to complete the required forms.
