Jeff Bezos-Style Giving: How Donor-Advised Fund Tax Deductions Work

Maya wants to give $100,000 to charity. She also owns shares she bought years ago for $20,000 that are now worth $100,000. If she sells the shares and writes a check, she pays $19,040 in federal tax on the gain first. If she gives the shares themselves to a donor-advised fund (DAF), that tax never happens, and she still gets a deduction for the full $100,000. Under the assumptions below, the second route leaves her $19,040 better off for the same gift.

Everything in this article follows Maya. Her numbers are an illustration, not a forecast, and not a recommendation.

Key points

• Giving appreciated stock held more than one year avoids tax on the gain; in Maya’s case an $80,000 gain would have cost $19,040 at a combined 23.8% rate.
• The deduction for long-term appreciated stock is generally its fair market value, so Maya deducts $100,000, not her $20,000 cost.
• At an assumed 35% marginal rate, that deduction is worth $35,000, making her net cost of a $100,000 gift $65,000.
• Selling first and gifting the cash costs her $84,040 net for the same $100,000 to charity.
• A DAF takes the deduction now and lets her pick the charities later, but the gift is irrevocable.

What is Maya’s actual situation?

Maya is single, files federal taxes as an itemizer, and has an adjusted gross income (AGI) of $400,000 this year. She owns shares with a cost basis of $20,000 (what she paid) and a current value of $100,000. She bought them more than a year ago.

That makes her gain $80,000 and makes it long-term. IRS Topic 409 explains that gains on assets held longer than one year are taxed at the lower long-term rates of 0%, 15%, or 20%, depending on taxable income. At $400,000 of income, Maya sits in the 20% band.

Assumptions used for every number below:

• Long-term capital gains rate: 20%
• Net investment income tax (NIIT): 3.8%
• Marginal ordinary income tax rate, which sets the value of a deduction: 35%
• AGI: $400,000
• Gift: $100,000 in value, to a DAF at a public charity sponsor

Why would she owe 3.8% on top of the 20%?

Because her income is high enough to trigger the net investment income tax. IRS Topic 559 describes the 3.8% tax on investment income, including capital gains, for people whose modified AGI is above a threshold. For a single filer that threshold is $200,000.

Maya’s modified AGI exceeds it by $200,000, and her gain is $80,000. The tax applies to the smaller of those two amounts, so the full $80,000 gets hit.

Combined rate: 20% + 3.8% = 23.8%. Tax if she sells: $80,000 × 0.238 = $19,040.

That’s the bill that giving the shares directly avoids. If you want to see how basis, holding periods and the gain itself are figured, IRS Publication 550 covers it in detail.

What happens if she gives the shares directly to a DAF?

She avoids the $19,040 and deducts the full $100,000. A donor-advised fund is an account held by a public charity (the sponsor). Maya contributes, the contribution is a completed gift for tax purposes that year, and she recommends grants from the account to charities whenever she likes.

When she transfers the shares, the sponsor can sell them without tax, because the sponsor is a charity. The $80,000 gain disappears from the tax system.

Her deduction: $100,000, because long-term appreciated stock given to a public charity is generally deductible at fair market value. Her $20,000 basis doesn’t cap it.

Value of that deduction at 35%: $100,000 × 0.35 = $35,000.

She gave away something worth $100,000 and got $35,000 back in lower tax. Net cost: $65,000.

What if she sells first and gives the cash?

Then the tax is real, and it comes out of her pocket. She sells for $100,000, owes $19,040, and keeps $80,960. To give the charity the same $100,000, she has to add $19,040 from elsewhere.

Her deduction is the same $35,000, since she gave $100,000 either way. But she also paid the $19,040 tax.

Net cost: $100,000 − $35,000 + $19,040 = $84,040.

There’s a middle option too: sell, pay the tax, and give only what’s left, $80,960. The charity gets less, the deduction shrinks to $28,336 ($80,960 × 0.35), and her net cost is $100,000 − $28,336 = $71,664. Here is all of it in one place:

The gap between the first two rows is exactly the $19,040 of tax. Nothing else differs. Both put $100,000 in the charity’s hands and both produce a $35,000 deduction.

Is the deduction really worth the full $35,000?

Only if she can use it in the year she gives, and that depends on a ceiling. Charitable deductions are capped as a percentage of AGI, and the cap depends on what you give. For long-term appreciated stock given to a public charity the ordinary ceiling is 30% of AGI. For cash it’s 60%.

Maya’s 30% ceiling: $400,000 × 0.30 = $120,000. Her $100,000 gift fits under it.

Raise the gift to $150,000 and $30,000 would not fit this year. Unused amounts can generally be carried forward for up to five more years, but the value of a deduction pushed into a later year depends on that year’s income and rates. I’m giving the general rule from memory of IRS charitable guidance here, not from the three documents cited above, so check the current limits before relying on them.

Also worth knowing: legislation passed in 2025 changed some itemized deduction rules starting in 2026, including a floor under charitable deductions and a cap on the rate at which top-bracket deductions save tax. Those details change the dollar value of the deduction. They do not change the other half of the story, which is the capital gains tax avoided. I haven’t modeled them here because I’d be guessing at the final rules, and the avoided gain holds either way.

Why does a DAF exist at all? Couldn’t she just give the shares to a charity?

She could, and the deduction math is the same. The DAF solves a timing problem. The tax year ends in December, but deciding which charities deserve $100,000 can take months.

A DAF splits the two decisions. The deduction happens when the money goes in. The charity choice happens when she recommends grants, which might be next month or over ten years. The assets inside can be invested in the meantime, and growth there isn’t taxed to her.

It also helps when she wants to give to many small charities. One transfer of shares to a DAF is simpler than splitting stock into pieces across a dozen organizations.

Can she use it to bunch deductions across years?

Yes, and this is a different benefit from the capital gains one. Itemizing only helps if her deductions beat the standard deduction.

Say, as an illustration, that Maya’s other itemized deductions come to $25,000 and the standard deduction is $15,000. If she gives $10,000 a year to charity, her itemized total is $35,000 each year, $10,000 above the standard deduction.

If she instead puts three years of giving ($30,000) into a DAF in one year, that year’s total is $55,000. In the other two years she takes the standard deduction of $15,000. Over three years: bunching gives $55,000 + $15,000 + $15,000 = $85,000 in deductions. Giving yearly gives 3 × $35,000 = $105,000. In this example, bunching loses.

Bunching works when your other deductions are small or near the standard amount. Here Maya’s other deductions already exceed the standard deduction, so bunching adds nothing. Change her other itemized deductions to $5,000 and the answer flips: yearly giving yields $15,000 (standard each year, $10,000 + $5,000 is not above it), 3 × $15,000 = $45,000, while bunching yields $35,000 + $15,000 + $15,000 = $65,000. The method matters less than whether you’re near the line.

What this does not tell you

The example is tidy on purpose. Real situations are messier.

• Your rates aren’t hers. At a lower income, the long-term rate might be 15% with no NIIT, and the tax avoided on an $80,000 gain would be $12,000, not $19,040. The deduction would also be worth less per dollar.
• Short-term holdings change the rules. Shares held a year or less generally can’t be deducted at full market value; the deduction is typically limited to what you paid.
• A DAF is not free. Sponsors charge administrative fees and often invest in funds with their own expenses. I haven’t modeled any.
• The gift can’t be taken back. Once the money is in the DAF, it’s the sponsor’s legal property. You advise on grants; you don’t control them.
• State taxes are ignored. Many states tax gains and have their own treatment of charitable gifts.
• AGI limits can bite. Large gifts relative to income may spill into carryforward years, which changes their value.
• Alternative minimum tax, phaseouts, and the 2026 itemizing changes can all shift the deduction’s value. I didn’t model them.

None of this tells you whether giving is right for you or how much. It only shows how the arithmetic works when you do.

FAQ

Does giving stock to a DAF really avoid all capital gains tax?

On the shares given, yes, as long as they were held more than one year and you transfer the shares themselves rather than selling first. The sponsor is a charity and doesn’t pay tax when it sells. Your gain on those shares never gets reported as a sale.

What if the shares are worth less than I paid?

Then the situation reverses. If Maya’s shares had fallen from $20,000 to $12,000, giving them would deduct $12,000 but forfeit a $8,000 loss she could have used to offset other gains. In that case, selling first, claiming the loss, and giving the cash would generally work out better.

How much of my income can I deduct for a DAF gift?

For long-term appreciated stock given to a public charity, the usual ceiling is 30% of AGI; for cash it’s 60%. At $400,000 of AGI, those are $120,000 and $240,000. Amounts above the ceiling can generally be carried forward up to five years. Verify current limits, since rules have been changing.

Do I get the deduction when I give to the DAF or when the DAF gives to charities?

When you give to the DAF. The tax benefit arrives in the year of the contribution, even if the money sits in the account for years. This is what makes the timing flexible.

Can I take the money back out if I change my mind?

No. The contribution is irrevocable. You can recommend which charities receive grants, and you can change those recommendations over time, but the money can’t return to you.

Does it matter that the sponsor sells the shares instead of me?

It’s the whole point. The sale by the charity isn’t taxed, so the $80,000 gain in Maya’s example is never taxed to her or to anyone.

Is the 3.8% NIIT avoided too?

On the donated shares, yes. The gain never enters her income, so it doesn’t count toward net investment income. Topic 559 lays out what counts as net investment income.

What should you look at next?

If you hold investments with large unrealized gains, check three numbers before anything else: your cost basis, how long you’ve held the shares, and your marginal rate. Those three determine nearly all of the arithmetic above.

Then look at your last return. Did you itemize, and by how much over the standard deduction? That tells you whether a deduction would change your tax at all.

Finally, read a DAF sponsor’s fee schedule and grant rules in full before comparing it against giving directly. A tax professional can run your exact figures, including state tax and any changes for 2026.

This article is general information, not financial advice. See our disclaimer.

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