"Donor-advised funds are a great way to give nonpublicly traded assets. Some charities will accept such assets directly, but only if they have the requisite expertise in-house," said Juan Ros, a certified financial planner and vice president for financial planning and philanthropy at Lamia Financial Group in Thousand Oaks, California.
Gifting appreciated assets comes with a double tax benefit: "Not only do you get to deduct the fair market value of the gift as a charitable deduction, but you also get to avoid paying tax on the unrealized gain of the donated property," said Chad Hamilton, a CFP in Denver who specializes in philanthropy.
For example, let's say a business owner makes a deal to sell his company and gifts shares of his stock worth $50,000 to a donor-advised fund. The business owner would avoid taxation on that $50,000 when the company is sold.
Assuming a cost basis of zero and an effective tax rate of 30 percent, a combination of long-term capital gains, state income tax and Medicare surtax, that is a long-term capital gains tax savings of $15,000, Hamilton said. Plus, that $50,000 gift is available to be claimed as a itemized charitable tax deduction.
Or let's say you want to unload bitcoin after its rapid rise this year. If you donate the bitcoin instead of selling it, you can take a charitable deduction for the fair market value on the day you give it away.
Another bonus: You'll also avoid capital gains taxes on the increase in value over time, which you would pay if you sold the bitcoin and then gave the charity the cash from the sale.
You can only deduct the fair market value if you held the bitcoin for more than a year before giving it away. If you've held it for less than a year, your deduction is limited to your cost basis, or what you paid for the digital currency, not its current value.
"Often people have appreciated assets, like stock, business interest or real estate, but they don't think of gifting those and instead just give cash," Hamilton said.