The Advantages of Using Appreciated Securities to Fund a Donor-Advised Fund
Many people fund their donor-advised funds with cash, but gifting appreciated securities can be a smarter move. By donating stocks, mutual funds, or ETFs instead of cash, you can avoid capital gains tax and still claim a charitable deduction for the asset’s full market value. Our analysis at Greenbush Financial Group explains how this strategy can create a double tax benefit and help you give more efficiently.
By Michael Ruger, CFP®
Partner and Chief Investment Officer at Greenbush Financial Group
Many individuals fund their donor-advised funds (DAFs) with cash — but they may be missing out on a major tax-saving opportunity. By gifting appreciated securities (such as stocks, mutual funds, or ETFs) from a brokerage account instead of cash, taxpayers can avoid capital gains taxes and still receive a charitable deduction for the fair market value of the gift.
In this article, we’ll cover:
Why donor-advised funds have grown in popularity
The pros and cons of funding a DAF with cash
How gifting appreciated securities can create a double tax benefit
Charitable deduction limitations to keep in mind when using this strategy
The Rise in Popularity of Donor-Advised Funds
Donor-advised funds have become one of the most popular charitable giving vehicles in recent years. Much of this growth is tied to changes in the tax code — particularly the increase in the standard deduction.
Since charitable contributions are itemized deductions, taxpayers must itemize in order to claim them. But with the standard deduction now so high, fewer taxpayers itemize their deductions at all.
For example:
In 2025, the standard deduction for a married couple is $31,500.
Let’s say that a couple pays $10,000 in property taxes and donates $10,000 to charity.
Their total itemized deductions would be $20,000, which is still below the $31,500 standard deduction — meaning they’d receive no additional tax benefit for their $10,000 charitable gift.
That’s where donor-advised funds come in.
If this same couple plans to give $10,000 per year to charity for the next five years (totaling $50,000), they could “bunch” those future gifts into one year by contributing $50,000 to a donor-advised fund today. This larger, one-time contribution would push their itemized deductions well above the standard deduction threshold, allowing them to capture a significant tax benefit in the current year.
Another advantage is flexibility — the funds in a donor-advised account can be invested and distributed to charities over many years. It’s a way to pre-fund future giving while taking advantage of a larger immediate tax deduction.
Funding with Cash
It’s perfectly fine to fund a donor-advised fund with cash, especially if your goal is simply to capture a large charitable deduction in a single tax year.
Cash contributions are straightforward and qualify for a deduction of up to 60% of your adjusted gross income (AGI). But while this approach helps you maximize deductions, there may be an even more tax-efficient way to give — especially if you own highly appreciated investments in a taxable brokerage or trust account.
Using Appreciated Securities to Make Donor-Advised Fund Contributions
A potentially superior strategy is to contribute appreciated securities instead of cash. Doing so provides a double tax benefit:
Avoid paying capital gains tax on the unrealized appreciation of the asset.
Receive a charitable deduction for the fair market value of the donated securities.
Here’s an example:
Suppose you bought Google stock for $5,000, and it’s now worth $50,000.
If you sell the stock and then donate the $50,000 cash to your donor-advised fund, you’d owe capital gains tax on the $45,000 gain.
Alternatively, if you donate the stock directly to your donor-advised fund, you:
Avoid paying tax on that $45,000 unrealized gain, and
Still receive a $50,000 charitable deduction for the fair market value of the stock.
After the transfer, if you’d still like to own Google stock, you can repurchase it within your brokerage account — effectively resetting your cost basis to the current market value. This approach can help manage future capital gains exposure while supporting your charitable goals.
Charitable Deduction Limitations: Cash vs. Appreciated Securities
Whether you donate cash or appreciated securities, it’s important to understand the IRS limits on charitable deductions relative to your income. These limitations are based on a percentage of your adjusted gross income (AGI) and vary depending on the type of asset you donate:
This means if you donate appreciated securities worth more than 30% of your AGI, the excess amount can’t be deducted in the current year — but it can be carried forward for up to five additional years until fully utilized.
Being mindful of these limits ensures that your charitable giving strategy is both tax-efficient and compliant.
Final Thoughts
Using appreciated securities to fund a donor-advised fund can be one of the most effective ways to maximize your charitable impact and minimize taxes. By avoiding capital gains tax on appreciated assets and receiving a deduction for their full fair market value, you can create a powerful, ongoing giving strategy that benefits both your finances and your favorite causes.
Before implementing this strategy, it’s wise to work with your financial advisor or CPA to confirm eligibility, ensure proper documentation, and coordinate timing for optimal tax efficiency.
About Michael……...
Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
Frequently Asked Questions (FAQ)
Why is donating appreciated securities to a donor-advised fund more tax-efficient than giving cash?
Donating appreciated securities allows you to avoid paying capital gains tax on the investment’s appreciation while still receiving a charitable deduction for its fair market value.
How does a donor-advised fund help maximize charitable deductions?
A donor-advised fund (DAF) allows you to “bunch” multiple years of charitable contributions into a single tax year, pushing your itemized deductions above the standard deduction threshold. This strategy can help you capture a larger tax benefit in the current year while retaining flexibility to distribute funds to charities over time.
What are the IRS deduction limits for donating appreciated securities versus cash?
Cash donations to public charities or donor-advised funds are generally deductible up to 60% of your adjusted gross income (AGI), while donations of appreciated securities are limited to 30% of AGI. Any unused deductions can typically be carried forward for up to five years.
Can I repurchase the same securities after donating them to a donor-advised fund?
Yes. After donating appreciated securities, you can repurchase the same investment within your brokerage account. This effectively resets your cost basis to the current market value, helping manage future capital gains exposure while maintaining your investment position.
Who might benefit most from using appreciated securities to fund a donor-advised fund?
This strategy is especially beneficial for investors with highly appreciated assets in taxable accounts who want to support charitable causes while reducing taxes. It can also help high-income earners manage taxable income in peak earning years.
What are some common mistakes to avoid when donating appreciated securities?
Common pitfalls include selling the securities before donating them (which triggers capital gains tax) or failing to meet IRS substantiation requirements for non-cash gifts. Working with a financial advisor or CPA ensures proper execution and documentation.
