Some of life’s most profound moments occur when we approach what is broken as an opportunity to create something beautiful. Take, for example, kintsugi—the 400-year-old Japanese art of repairing broken pottery with urushi lacquer dusted or mixed with powdered gold, silver, or platinum. Instead of hiding the cracks, this technique showcases each unique break, creating a piece that is not only whole again but stronger and more beautiful than before.

This philosophy—finding opportunity in what seems broken—can be applied to many areas of life. In the financial arena, taking a tax hit when selling highly appreciated property held for longer than one year can seem like an unavoidable flaw in the system for most taxpayers. It’s costly and painful. However, there’s a way to transform that tax hit into something extraordinary. By donating long-term appreciated assets instead of selling them, donors can turn a tax liability into a meaningful opportunity to do good and make a difference while also enjoying significant tax advantages.

This issue examines several ways donors can secure useful tax benefits by turning valuable investments into gifts that achieve maximum impact. These strategies underscore the importance of initiating client conversations regarding gift options that prove more tax-efficient than cash. While donors are becoming more sophisticated each year, non-cash assets remain an under-leveraged source of effective philanthropy.

Expanded Giving Options

It’s not uncommon for donors to limit their charitable giving to cash, even though about 90% of household wealth in the U.S. consists of non-cash assets. Investors often hold long-term appreciated assets (held for longer than one year), such as stocks (publicly traded securities or restricted stock), bonds, real estate, artwork and collectibles, cryptocurrency, and closely held business interests (privately owned C corporations, S corporations, LLCs, or LLPs).

Long-term appreciated property presents donors with a unique and powerful giving opportunity by offering the following benefits:

1. Tax minimization

A gift of long-term appreciated assets can potentially eliminate the capital gains tax the donor would have incurred by selling the assets (at rates up to 20% or 23.8% when including the net investment income tax). This can allow the donor to make a more significant gift, and of course, the charity itself does not owe tax on the donated assets.

2. An income tax charitable deduction

A gift of long-term appreciated property qualifies for a charitable income tax deduction for the full fair market value (FMV) of the asset at the time of the gift—even though the appreciation has not been taxed. Some donors choose to pass these savings on to the charity to create an even larger gift. Gifts of long-term appreciated property to a public charity or donor-advised fund (DAF) are generally deductible up to 30% of the taxpayer’s adjusted gross income (AGI) for those who itemize (up to 20% of AGI for gifts to a private foundation).^[1] Excess contributions may be carried forward for up to five subsequent tax years.^[2]

When discussing charitable goals with clients, encourage them to consider their entire portfolio to determine the most tax-efficient assets for giving. Typically, donors reap the greatest tax benefits by targeting assets they have held for longer than one year with the lowest cost basis and the highest amount of appreciation. (Remember that short-term appreciated assets—those held for one year or less—are considered “ordinary income property,” and the deduction is limited to the cost basis.)

Gifts of Marketable Securities

It is easy for a donor to give long-term appreciated stocks, bonds, mutual fund shares, or other readily marketable securities by simply transferring the shares directly to a public charity or a DAF.^[3] Let’s look at the impact of the double tax benefit (income tax deduction plus bypassing the capital gains tax) by comparing a direct donation of long-term appreciated securities and a sale of long-term appreciated securities with the sale proceeds donated to charity.

Example: Bob purchased publicly held stock 10 years ago for $10,000, and it is now worth $50,000. He would like to donate to his favorite charity. He thinks about selling the stock but doesn’t want to pay the tax on the $40,000 appreciation.

Bob considers another option—directly donating the stock to the charity. He could take advantage of the rare opportunity to obtain a double tax benefit (assuming he itemizes), and he could make a greater impact on a meaningful organization.

Stock sale vs. donation

Itemized breakdown	Sell the stock and donate after-tax proceeds to charity	Donate the stock directly to charity
Current FMV	$50,000	$50,000
Long-term capital gains tax paid (20% + 3.8% net investment income tax)	$9,520	$0
Charitable donation / tax deduction	$40,480	$50,000
Tax savings[4]	$4,648	$17,500
Total tax benefit (income tax deduction plus capital gains tax elimination)	$14,168	$27,020

By donating the long-term appreciated stock directly to a public charity, Bob makes a larger gift, qualifies for a larger income tax deduction, and obtains greater tax savings. Bob’s gift is almost $10,000 more than if he sold the stock and donated the after-tax proceeds. At a tax rate of 35%, he would save $4,648 in taxes by selling the stock, but he would save an additional $12,852 if he donated the stock directly. Bob would also be able to bypass the capital gains tax, allowing him to gift the full $50,000 value to his favorite charity.

Charitable Gain Harvesting

Investors should regularly evaluate and rebalance their portfolios. One way donors can use this process for charitable giving is through “charitable gain harvesting,” in which they identify assets with significant unrealized gains and donate them directly to charity. Charitable gain harvesting focuses on the gains from highly appreciated assets, targeting assets that have performed exceptionally well and using them to maximize charitable gifts and offset tax obligations. The value of this strategy for mitigating taxes increases with larger donations and greater amounts of appreciation.^[5]

Like with any charitable giving strategy, donors must consider the tradeoffs:

• The donor may give an asset that continues to appreciate—it’s impossible to predict future investment gains or losses.
• The donor may need to pay transaction costs and other expenses related to the harvested tax gains.

Of course, it’s important to remind donors to consider their entire financial picture, time horizon, and risk tolerance before donating or selling assets.

A donor who “harvests” a substantially larger amount than they want to donate in a particular tax year can still reap tax benefits. One option is for the investor to contribute the full harvested amount to a DAF, qualify for an immediate charitable income tax deduction, and then recommend grants in whatever amount and at whatever time the donor chooses.^[6] The money has the potential to grow tax free inside the DAF.

Privately Held Stock

Privately held stock represents ownership in a company that is not publicly traded on the stock market. Typically, such companies are smaller, family-owned businesses or larger companies that have chosen to remain as a closely held company. Because stock from privately held companies is not as liquid as its publicly traded counterparts, it can be a strategic asset to use for charitable purposes, benefiting both donors and charities. However, unlike a gift of public securities, this gift typically requires a coordinated effort between the charity, the donor shareholder’s CPA and wealth advisor, and a qualified, independent valuation professional.

Timing Is Everything

Donors can achieve the most tax-advantaged position by making the charitable contribution of a full or partial business interest just before the sale of the underlying company—but the donor needs to plan carefully and get the timing just right.

Depending on the particular business, exit opportunities can arise quickly, creating a narrow window of opportunity to make charitable donations in a tax-efficient manner. A donation of privately owned stock must be made before a legally binding sale agreement is in place. If a letter of intent is in place, it must be nonbinding. When a donor makes a charitable contribution after a legally binding agreement is in place, the doctrine of anticipatory assignment provides that there is a material risk that the IRS will disregard the charitable contribution, which will cause the donor to recognize a taxable gain on the transaction.  

The Qualified Appraisal Requirement

Determining the fair market value of the privately held stock is a critical step in the charitable donation process for privately held shares. The appraisal is essential to substantiating a charitable income tax deduction. For donations of privately held stock, IRC § 170 requires the donor to obtain a qualified valuation for the contributed property and attach it to the tax return on which the taxpayer first claims the deduction. The taxpayer must also file Form 8283, which includes a signed declaration by the valuation professional relating to the accuracy of the valuation.

A donor should start the qualified appraisal process as soon as they begin seriously considering a charitable donation of privately held stock. This prevents last-minute scrambling at tax time. Failure to accurately perform and document the valuation can result in a loss of the charitable deduction and penalties assessed to both the donor and the valuation professional.

The donor must obtain a certified appraisal no earlier than 60 days before the date of the gift and no later than the due date of the donor’s tax return for the year of the donation.^[7] The donor must leave enough time to accurately document the stock’s value to ensure the charitable contribution will qualify for a tax deduction in the year of the gift. Valuations are purpose-specific; therefore, the donor cannot use a recent valuation prepared for another purpose.

Restricted and Control Stock

Charitably minded business owners and executives may have the option to donate either restricted or control stock shares to help maximize philanthropic impact while minimizing taxes on the donor’s position. When these shares are held for more than one year and have a low cost basis and a high current market value, they generate substantial capital gains when sold, resulting in a significant tax hit.

• Restricted stock consists of securities that are not registered with the SEC. They are usually acquired in unregistered, private sales from the issuing company or an issuer’s affiliate (a person in a position of control with the issuer, such as a senior officer, director, or large shareholder). Investors typically receive restricted securities through private placement offerings,^[8] as compensation for professional services, through an employee stock benefit plan, or in exchange for providing start-up capital for the company.
• When a donor acquires restricted securities, they almost always receive a certificate stamped with a “restrictive” legend. This legend indicates that the stock has not been registered with the SEC under the Securities Act of 1933 or state securities laws. In some cases, the restriction can be lifted by removing the legend, but this is at the issuer’s sole discretion.

• Control stock is owned by an affiliate of the issuer. If a donor purchases securities from an affiliate, the donor holds restricted stock, even if it was not restricted in the affiliate’s hands. A restriction may apply to the person attempting to sell control stock because the person is considered an affiliate of the issuer, but certificates for control securities are not typically stamped with a legend.

Unique Considerations for Gifts of Restricted or Control Stock

The SEC prohibits the resale of restricted, unregistered, and control securities unless they are registered with the SEC before the sale or are exempt from the registration requirements.

A donor can only sell restricted stock in accordance with Rule 144 resale restrictions,^[9] which allow the public resale of restricted and control securities if several conditions are met, including:

• A minimum holding period (generally one year)
• Normal trading conditions
• A limited number of securities that can be sold at a certain time

A donor who gives restricted stock to charity can take advantage of the same double tax benefits of other appreciated assets—bypassing the capital gains tax and qualifying for a charitable income tax deduction for the full fair market value up to AGI limits.

It is critical to first determine whether the selected charity is willing and able to accept the gift. If the charity does not have the means to evaluate, receive, process, and liquidate the restricted stock, the donor might consider contributing the stock to a DAF and then making a grant to the selected charity. This can be a simpler option since donor-advised funds routinely accept shares of restricted stock.

Cryptocurrency

Cryptocurrency is a digital form of money, but it is also increasingly used as an investment vehicle for both short- and long-term gains. In this regard, it is similar to property or stocks. Though volatile, cryptocurrency ownership rates are growing, with a market cap rate above $3 trillion^[10] as of January 2025 and more than 10,000 different cryptocurrencies in circulation.^[11] In October 2024, the Pew Research Center reported that the vast majority of Americans have heard of cryptocurrencies, and roughly 17% say that they have invested in, traded, or used crypto at some point.^[12]

Still, people who hold cryptocurrency may not immediately think of using it to achieve their charitable goals. If it is highly appreciated, it provides the same potential for favorable tax treatment as gifts of appreciated stock or real estate.

Indiana University Foundation accepts gifts of cryptocurrency via our cryptocurrency broker, BitPay. In partnership with BitPay, the Indiana University Foundation can accept specified crypto tokens as a gift. These gifted tokens will be immediately sold, permitting donors to contribute dollars to the fund(s) of their choice.

Tax Considerations for Cryptocurrency

For tax purposes, whether cryptocurrency is treated as a capital asset or ordinary income depends on whether the owner held the cryptocurrency for investment purposes or received it as a form of compensation. However, a gift of cryptocurrency is consistently treated as a capital asset—the IRS does not recognize it as a gift of currency or legal tender.

Upon receipt of cryptocurrency, the taxpayer records the fair market value (determined by the exchange rate) as income. For cryptocurrency treated as a capital asset, any change in value after receipt is considered a capital gain or loss, with gains subject to the capital gains tax.

When a donor makes a gift of cryptocurrency held for longer than one year directly to charity (without cashing it out or converting it to a different type of cryptocurrency, which are both considered taxable events), the donor can take a larger deduction for the donated long-term capital gain property.^[13] The federal tax rate for cryptocurrency is the same as the capital gains tax rate.^[14]

Tax considerations for cryptocurrencies include the following:

• The donor may deduct the gift’s FMV (up to 30% of AGI with a five-year carryover for any amount more than this AGI limit) if the donor has held the cryptocurrency for more than one year.
• A qualified appraisal is generally required to substantiate a claimed income tax deduction.
• For cryptocurrency investments held for one year or less, and for cryptocurrency treated as an ordinary income asset, the donor’s deduction may be limited to the lesser of cost basis or the FMV (up to 50% of AGI with a five-year carryover).
• For donations over $500, donors must complete Form 8283. For donations exceeding $5,000, donors must complete Section B of Form 8283 and provide a qualified appraisal.^[15]

According to Notice 2014-21, all the general tax principles that apply to property transactions apply to convertible virtual currency.^[16]

Acceptance of Cryptocurrency Donations

The donor must determine the method the charity uses to accept cryptocurrency donations:

1. Acceptance directly into a wallet. The charity must have a wallet (a place online or offline to store digital tokens) in order to take direct possession of the cryptocurrency.
2. Acceptance through a crypto exchange. The donor transfers the cryptocurrency to the exchange, which automatically exchanges the crypto for cash in return for a transaction fee.
3. Acceptance through a nonprofit cryptocurrency processor. These businesses process cryptocurrency donations and provide the cash proceeds to the charity for a transaction fee.
4. Acceptance through a donor-advised fund. Large DAFs receive and immediately liquidate cryptocurrency donations.

When working with tech-savvy clients who are philanthropically inclined, it can prove highly beneficial to start a conversation about using their cryptocurrency to make a powerful, tax-advantaged gift.

Real Estate

While real estate comprises 43% of America’s total wealth, only 3% of charitable giving comes from real estate.^[17] Although it may be administratively easier to sell appreciated land or real estate and then donate funds to charity, donating appreciated real estate directly to charity allows donors to increase tax savings and potentially make a larger gift. For the right donor, a gift of highly appreciated real estate can accomplish multiple planning goals:

1. Remove property that the donor no longer wants to use or maintain from their estate without having to go through the sales process
2. Potentially eliminate any capital gains tax on the appreciation
3. Qualify for an income tax deduction for the property’s fair market value (assuming it has no mortgage debt against it and the donor is not in the business of buying and selling real estate)

The donor is required to complete Form 8283 and obtain a qualified appraisal to substantiate the fair market value over $5,000. For property valued at over $500,000, the appraisal must be attached to the donor’s tax return.

Common Gift Arrangements

1. Outright gift. Donors who own highly appreciated real estate they no longer use or want to manage can unlock a tax-efficient way to make a charitable contribution. The donor may receive an income tax deduction equal to all or a portion of the appraised fair market value of the property, and the donor can reduce or eliminate capital gains tax.
2. Bargain sale. A bargain sale occurs when a taxpayer sells a property to a charitable organization for less than the property’s FMV. The difference between the property’s FMV and the sale price realized is the gift to the charity if the taxpayer had charitable intent at the time of the sale. A bargain sale allows the donor to receive part of their equity in cash. The balance of the appraised equity becomes a deductible donation.
3. A gift of a remainder interest in a residence or farm. A charitable deduction is available for an outright gift of a remainder interest in a home or farm.^[18] The donor transfers the legal title to the charity but retains an absolute right to occupy the home or farm for life. Taxpayers who itemize may deduct the present value of the charity’s right to receive the property at some later date.
4. Gifts of fractional interests in a vacation home. A charitable deduction is also available for a gift of a fractional interest in real estate. This arrangement can be a rewarding way for donors to make the most out of a property that is only used part of the year.
5. Gifts of real estate with retained income. Several legal arrangements provide for a charitable donation that allows a donor to retain income for life or for a specified number of years. One of the most popular ways to do this is using charitable remainder trusts,^[19] such as a charitable remainder annuity trust or a charitable remainder unitrust.

Finding the Beautiful in the Broken

Charitable gifts of cash remain the most popular way to donate, but they are often not the most tax-efficient way to give. It’s important to help clients consider how their most valuable assets can help them achieve maximum philanthropic impact with significant tax advantages. Just as kintsugi transforms broken pottery into something stronger and more beautiful, a thoughtful approach to charitable giving can transform financial burdens into lasting benefits for both donors and the charitable organizations they care about most.

Endnotes

1. IRC §§ 170(b)(1)(C) and 170(b)(1)(D).[↵]
2. IRC § 170(d)(1).[↵]
3. IRC § 4966(d)(2)(A). (Defining a “donor-advised fund”).[↵]
4. The tax savings shown are calculated by taking the tax deduction, multiplied by the donor’s income tax rate, then subtracting the long-term capital gains taxes paid: ($40,480 x 35%) – $9,520 =$4,648. The example does not consider any state or local taxes and is for illustrative purposes only.[↵]
5. There is a 30%-of-AGI limit on gifted capital gain property for 50% limit organizations such as churches, schools, hospitals, etc. and a 20% limit for non-50% limit organizations. These limits are more restrictive than the 60%-of-AGI limit on cash. However, unused charitable deductions can be carried forward up to five years.[↵]
6. IRC § 170(f)(18). (Generally, a donor can advise the fund how to distribute or invest amounts held in the fund.)[↵]
7. 26 CFR § 1.170A-17(a). (Defining “qualified appraisal,” “qualified appraiser,” and outlining requirements of timely appraisal reports).[↵]
8. “Private Placements under Regulation D – Updated Investor Bulletin,” U.S. Securities and Exchange Commission, August 17, 2022. https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins/private.[↵]
9. Sneha Solanki, “Rule 144 – Legal glossary,” Thomson Reuters, August 30, 2024. https://legal.thomsonreuters.com/blog/rule-144-legal-glossary/. (Rule 144 is a regulation enforced by the SEC. The regulation provides an exemption that allows the public resale of restricted, unregistered, and control securities if several conditions are met.).[↵]
10. “Crypto Market Overview,” CoinMarketCap, accessed January 15, 2024. https://coinmarketcap.com/charts/.[↵]
11. “Cryptocurrency: Selected Policy Issues,” Congressional Research Service, February 15, 2023. https://crsreports.congress.gov/product/pdf/R/R47425.[↵]
12. Michelle Faverio, Wyatt Dawson, and Olivia Sidoti, “Majority of Americans aren’t confident in the safety and reliability of cryptocurrency,” Pew Research Center, October 24, 2024. https://www.pewresearch.org/short-reads/2024/10/24/majority-of-americans-arent-confident-in-the-safety-and-reliability-of-cryptocurrency/.[↵]
13. IRC § 1222(3).[↵]
14. For long-term capital gains, taxes range from 0-20%, depending on income, plus a 3.8% surtax applied for taxpayers with a modified adjusted gross income of more than $200,000 if single or head of household and $250,000 if married filing jointly. For short-term capital gains, capital gains are taxed at income rates of 10-37%.[↵]
15. “Internal Revenue Service Memorandum #202302012,” Office of the Chief Counsel, January 10, 2023 (released January 13, 2023). https://www.irs.gov/pub/irs-wd/202302012.pdf.[↵]
16. “Notice 2014-21,” Internal Revenue Service, April 14, 2014. https://www.irs.gov/pub/irs-drop/n-14-21.pdf. (As modified by Rev. Ruling 2023-14, providing that convertible virtual currency is treated as property and that general tax principles applicable to property transactions apply to convertible virtual currency. https://www.irs.gov/pub/irs-drop/rr-23-14.pdf.)[↵]
17. “Real Estate,” American Endowment Foundation, accessed December 16, 2024. https://www.aefonline.org/thought-leadership/thought-leadership-real-estate-donation/.[↵]
18. IRC § 170(f)(3)(B)(i).[↵]
19. IRC § 664, 26 CFR § 1.664-1.[↵]