Turning Gains Into Good

News | Wealthy Behaviors

Turning Gains Into Good

Posted on August 12, 2025

A Smart Gifting Strategy for a Strong Market Year

If your portfolio has grown significantly this year, there’s a smart way to do good, without giving up financial ground. When markets are strong, many investors find themselves sitting on appreciated assets that have gained substantial value over time. While it’s tempting to cash in and donate the proceeds, doing so may result in a hefty capital gains tax bill.

But there’s a smarter option that benefits both your portfolio and your favorite causes: gift the appreciated securities directly to charity, then replace the value with cash.

This strategy can provide you with a powerful trifecta: tax savings, smarter investing, and a bigger charitable impact.

Minimize capital gains taxes, support your favorite charities, and realign your portfolio by gifting appreciated assets instead of cash.

What’s the Strategy?

Instead of donating cash directly to a charity, instead gift the highly appreciated securities you’ve held for over a year. The charity (or Donor-Advised Fund, or “DAF”[i]) sells them tax-free, and you get a full market value tax deduction, without realizing any capital gains.

You then use available cash (ideally the same amount you planned to give) to replenish your portfolio by purchasing new investments in either similar or diversified holdings.

This “reset” increases your portfolio’s cost basis[ii], making it more tax-efficient for the future, and helps realign your investments to a total return model without impacting your overall net worth.

Why Does it Matter Now?

With the shift to total return portfolios and the strong market performance this year, this strategy is especially timely. It helps you:

Avoid paying capital gains taxes on appreciated assets.[iii]
Take a larger charitable deduction (full market value, up to 30% of your AGI), as long as the asset has been held long-term (one year or longer). Donating short-term appreciated assets only qualifies for cost-basis deduction.
Realign your portfolio without triggering unnecessary tax costs.
Support more causes with the same assets, since your charity of choice receives the full pre-tax value.

Example in Action
Let’s say you bought a stock for $25,000, and it’s now worth $40,000.[iv] If you donate the stock directly:

Action	Donate Stock	Sell & Donate Cash
Value to Charity	$40,000	$36,430 (after tax)
Tax Deduction	$40,000	$36,430
Capital Gains Paid	$0	$3,570

By donating the stock and replenishing your portfolio with $40,000 in cash, you maintain your net worth, support a cause you care about, and position your investments more strategically going forward.

Can This Reduce Risk While Maximizing Impact?

Absolutely. In fact, it’s one of the most elegant ways to minimize risk in a portfolio while doing good. This works by:

Reducing concentration risk by offloading large positions in single stocks or sectors.
Diversifying and rebalancing by reinvesting cash into a broader mix of holdings.
Increasing tax efficiency through higher cost basis and less embedded gain.
Boosting philanthropic impact by giving more and deducting more, with no tax erosion.

Key Considerations and Limitations

Before implementing this strategy, it’s important to consider:

Timing and Repurchase: While wash-sale rules don’t apply, repurchasing the exact same security too soon may raise IRS questions.
AGI Limits: Deductions are generally capped at 30% of your AGI[v] (excess can be carried forward 5 years). Be aware this only applies only to donations of appreciated securities to public charities or DAFs, and not to all types of gifts.
Qualifying Charities Only: This works best with IRS-qualified public charities and DAFs.
Cash Flow: You’ll need enough liquidity to replenish the gifted amount without affecting retirement needs.
Documentation: Keep detailed records for tax purposes, especially for gifts over $5,000.