Fidelity highlights a strategy to eliminate capital gains tax

Selling a winning stock after a decade of patiently holding it can mean handing the federal government up to 23.8% of the profit. That rate combines the top 20% long-term capital gains tax bracket with the 3.8% Medicare surtax, according to Fidelity Charitable.

Investors who want to support charitable causes have another option that could help them avoid the tax bill.

Fidelity’s year-end tax-planning guide highlights a strategy of donating appreciated stocks directly to qualified charities rather than selling them first.

This allows donors to avoid capital gains taxes while charities receive the full market value of the shares.

Also Read: Vanguard, Fidelity name the smarter alternative to selling stock

How Fidelity’s strategy delivers a double tax benefit

The approach yields two tax advantages simultaneously, and both Fidelity Charitable and Kiplinger confirm its effectiveness for long-term holders. 

The donor avoids paying capital gains tax on the stock’s increase in value and, if itemizing his or her deductions, will qualify for a charitable tax deduction based on the shares’ full fair market value when donated, according to Craig Wear, founder and CEO of Q3 Advisor.

Wear explained that the savings grow sharply as the embedded gain increases. 

A $100,000 position with an $80,000 gain would incur $19,040 in federal tax at the combined 23.8% rate, so the charity would receive only $80,960 from a sale of the stock rather than the full amount from a direct transfer of ownership.

Donald Greene, National Donor-Advised Fund Executive at Bank of America Private Bank, said investors who donate their most-appreciated holdings directly to charity, rather than selling first, capture a benefit many overlook during year-end planning.

<strong>Charitable gain harvesting is a valuable tool that allows you to maximize your resources, so that you can fully realize your charitable vision and legacy,</strong>

The strategy goes beyond individual stocks to include bonds and mutual fund shares, provided the donor has held them for longer than one year, Fidelity confirmed.

What the 2026 deduction limits and rule changes mean

Contributions of long-term appreciated securities to a public charity are capped at 30% of the donor’s adjusted gross income (AGI), compared with 60% for cash gifts, according to IRS Publication 526. 

Any amount above the 30% threshold carries forward for up to five additional tax years, giving donors flexibility if a single gift exceeds the annual ceiling.

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The 2026 tax year also introduced two changes under the One Big Beautiful Bill Act (OBBBA) that affect charitable deductions for itemizers, Q3 Advisors reported. 

A new 0.5% AGI floor means only contributions exceeding 0.5% of adjusted gross income are deductible, and a separate provision caps itemized charitable deductions at 35% for taxpayers in the top 37% bracket.

Both changes reduce the net deduction for high-income donors with large gifts, while the capital gains tax savings at the core of the strategy remain fully intact.

New 2026 tax rules introduce stricter limits on charitable deductions, changing how high-income donors benefit from gifting appreciated stocks to charity.

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Why most investors with appreciated stock still donate cash instead

A Fidelity study found that 80% of donors owned publicly traded securities that had appreciated in value, yet only 19% had ever donated those assets to charity. 

That gap has a real cost, because a direct stock transfer can increase the amount reaching the nonprofit by up to 20% compared with selling the securities first and donating cash, Kiplinger’s guide to tax-smart charitable giving confirmed.

Donors facing that obstacle can route the securities through a donor-advised fund (DAF), which provides an immediate deduction and allows donors to recommend grants to multiple nonprofits over time, Q3 Advisors noted.

Fidelity’s year-end guide also flags the strategy as a rebalancing tool, because donating the most-appreciated position trims concentration in a single name without being taxed.

What the IRS requires to complete the transfer

The donor must initiate a direct transfer of shares to the charity’s brokerage account, and the gift must arrive by December 31 to qualify for a deduction in the current tax year, Fidelity noted. 

The IRS requires a written acknowledgment from the charity for any gift valued at $250 or more, and donations above $500 require the donor to file Form 8283. 

Only long-term holdings qualify for the full fair market value deduction, so the shares must have been held for more than one year at the time of the gift, Fidelity confirmed.

What concentrated-position investors should weigh before year-end

Investors holding an outsized position in a single name face a year-end decision: donate those shares directly, or sell them and give cash. 

The optimal path depends on gift size, the donor’s adjusted gross income (AGI), projected AGI over the next five years, and the ability to itemize, according to an analysis by Anchin LLP. 

Appreciated securities face a 30% AGI deduction ceiling versus 60% for cash, yet donating in kind is generally more efficient because it avoids capital gains tax, Wear explained.

Fidelity recommended starting with highly appreciated stock, which offers the greatest potential tax benefit and can restore balance to a concentrated portfolio without triggering taxes. 

Donors who select the right holding, confirm their charity accepts stock transfers, and act before the end of the year have the key elements in place, Fidelity’s year-end guidelines confirmed.

Related: Fidelity highlights tax-free way to fund long-term care

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