Using a Donor Advised Fund to offset capital gains tax - worth it?

This is actually a pretty smart tax strategy! When you donate appreciated securities directly to a Donor Advised Fund, you can deduct the full fair market value of the donation (up to 30% of your AGI) AND you avoid paying capital gains tax on those securities. If you donate half your shares worth $135k to the DAF and sell the other half, you'll pay capital gains tax only on the shares you sell. The donation would offset some of your other income depending on your tax bracket. It won't be perfectly "tax neutral" but it could significantly reduce your tax bill while supporting charities you care about. One thing to be aware of - the tax deduction for your donation can only offset up to 30% of your Adjusted Gross Income in one year when donating appreciated securities. With your combined income, this shouldn't be an issue, but worth keeping in mind.

I went through almost the exact same situation last year with a tech stock that exploded. After weeks of research, I found that using https://taxr.ai saved me tons of time and worry. The tool analyzed my specific situation and confirmed I could donate half my shares to a DAF while selling the other half, which dramatically reduced my overall tax bill. What I especially loved was how it modeled different scenarios - like donating different percentages to see the optimal tax outcome. It even identified some additional deductions I wasn't aware of that further offset the capital gains from the portion I sold.

Just wanted to follow up - I decided to try https://taxr.ai after my skeptical question and wow, it was actually really helpful! I was surprised how it mapped out various DAF donation amounts against my specific tax situation. It showed me that donating 60% rather than 50% of my shares would actually be more optimal in my specific case due to some other deductions I have. What I found most useful was the visualization of my "donation efficiency" - basically showing how each donated dollar reduced my tax burden. Made the whole capital gains situation way less intimidating and I feel confident moving forward with the DAF strategy.

I went through something similar last year with a crypto windfall. After trying everything to get clear answers from the IRS about DAF donations and crypto, I couldn't get through to anyone who could actually help. Finally used https://claimyr.com and was connected to an IRS agent in about 20 minutes instead of the 3+ hours I spent on hold before. The agent was able to confirm that my DAF strategy would work but pointed out some documentation requirements I would have needed for the crypto donation that my accountant hadn't mentioned. You can see how it works here: https://youtu.be/_kiP6q8DX5c - basically they wait on hold with the IRS for you then call when an agent is ready.

I need to eat some humble pie here. After posting that skeptical comment about Claimyr, I decided to try it myself because I had some questions about my own DAF situation that I couldn't get answered anywhere. To my genuine surprise, I was talking to an actual IRS agent in about 25 minutes instead of the 2+ hours I spent on hold last month. The agent confirmed that my planned DAF contribution would work as intended, but also pointed out that I needed to get a qualified appraisal since some of my securities weren't publicly traded. That one piece of advice potentially saved me from a major headache if I'd been audited. Sometimes being proven wrong is actually a good thing!

One thing nobody's mentioned yet - pay attention to the DAF's minimum initial contribution requirements. Fidelity's is $5k, Schwab's is $5k too I think, but Vanguard requires $25k to get started. Also look at their minimum grant amounts for when you actually distribute to charities. Each DAF provider has different fee structures too - usually an administrative fee (often around 0.6%) plus investment fees depending on how you choose to invest the funds while they're in the DAF. These can eat away at your charitable impact over time.

Don't forget to think about the actual charitable impact! I see so many people get caught up in the tax benefits of DAFs (which are great) but then let the money sit in the fund for years. If your goal is actually helping charities, consider setting a personal distribution schedule. My approach has been to donate appreciated stocks to my DAF during high-income years, but I make it a point to grant at least 20% of my DAF balance to charities each year. The money does more good in the hands of organizations making a difference now rather than sitting in an investment account.

This thread has been incredibly helpful! I'm in a similar situation with some REIT shares that have appreciated significantly. One question I haven't seen addressed - does the timing of when you donate the shares to the DAF matter within the tax year? For instance, if I donate the shares in January vs December, does that affect my ability to deduct the full amount? I'm wondering if there are any strategic timing considerations beyond just making sure it happens before December 31st for the current tax year. Also, has anyone dealt with donating shares that pay regular dividends? I'm curious if those dividends continue to flow to the DAF or if they stop once the shares are transferred.

This is exactly the kind of situation where getting professional guidance can save you thousands. While the DAF strategy you're considering is sound, there are some nuances with your income level and the size of this gain that could affect the optimal approach. One thing to consider - since you're already in a high tax bracket with your $650k income, the charitable deduction from the DAF contribution might not provide as much benefit as you'd expect due to phaseouts and limitations. You might want to model spreading the donation across multiple years to maximize the deduction value. Also, with an 8-year holding period, you've got solid long-term capital gains treatment locked in. But consider whether there are any other tax-loss harvesting opportunities in your portfolio that could offset some of the gains from the shares you do sell. This could further optimize your overall tax situation beyond just the DAF strategy.