Short answer
If you have charitable intent or a large estate, the most valuable moves have to be completed before your sale is practically certain. Give a piece of the business to a charity or a charitable remainder trust before a deal hardens, and the later sale of that piece is tax-free to the charity, so appreciation you would have paid tax on funds your giving instead. Wait until a deal is a sure thing and the IRS treats the gift as if you sold and then donated the cash, which loses the benefit; the Hoensheid case in 2023 is the warning, and it also shows you need a qualified appraisal. Donor-advised funds work the same way for appreciated interests. On the estate side, the 2026 federal exemption is $15 million per person and gifting rollover equity while its value is still low can move future growth out of your estate. New 2026 rules shrank what a charitable deduction is worth for high earners, and none of this is worth doing if you have no charitable intent or the deal is already signed.
Key facts
- The timing rule
- A charitable gift of business interests must be complete before the sale is practically certain, or the IRS taxes you as if you sold and donated cash.
- Charitable remainder trust
- Funded with business interests before the sale, the trust sells tax-free and pays you an income stream, with the remainder going to charity.
- The qualified appraisal
- A gift of closely held interests needs a qualified appraisal under Section 170(f)(11) and Form 8283; missing it can cost the entire deduction.
- 2026 charitable deduction limits
- A new 0.5 percent of AGI floor, a 35 percent cap on the benefit of itemized deductions for top-bracket taxpayers, and a 60 percent of AGI limit on cash gifts.
- 2026 estate exemption
- $15 million per person, permanent and indexed after 2026; the annual gift exclusion is $19,000.
- Gifting rollover equity
- Moving rollover units out of your estate while their value is low shifts future growth to your heirs at a low gift-tax cost.
The one rule that governs all of it: finish before the deal is certain
Almost every powerful charitable and estate move before a sale depends on a single idea. If you give away a piece of your business before your sale is a sure thing, the charity or trust that receives it can sell it without paying tax on the built-in gain, and the appreciation you would have owed tax on funds your giving or your family instead. If you wait until the deal is practically certain, the tax code treats you as if you sold the business yourself and then donated the cash, which pulls the whole gain back onto your return. Same gift, completely different result, decided by timing alone.
This is not a gray area you can talk your way around. The rule has a name, the anticipatory assignment of income doctrine, and a line of cases that mark the boundary. Revenue Ruling 78-197 respects a gift followed by a sale as long as the charity is not legally bound to sell. In Dickinson v. Commissioner, the donor won because the charity that received the interest was free to do as it wished. In Estate of Hoensheid v. Commissioner, decided in 2023, the donor lost: he gave stock to a donor-advised fund only two days before closing, when the sale was already practically certain, and the court looked at how bound the charity was to sell, the steps already taken to complete the sale, and whether anything real was still uncertain. The gift came too late. To make matters worse, the court denied the entire deduction, more than three million dollars, because he had not obtained a qualified appraisal.
First, give before a signed letter of intent hardens into a near-certain deal, not in the final days before closing. Second, a gift of closely held business interests needs a qualified appraisal under Section 170(f)(11), reported on Form 8283. Skipping the appraisal cost the Hoensheid donor the whole deduction even for the value he genuinely gave. Both of these have to be handled early and correctly.
The charitable remainder trust: sell inside the trust, tax-free
A charitable remainder trust is the most complete version of this idea. You fund the trust with business interests before the sale is certain. The trust then sells those interests and pays no tax on the gain, so the full pre-tax value stays invested. In return the trust pays you an income stream, for a set term or for life, and whatever remains at the end goes to charity. You get a partial charitable deduction when you fund it and you spread your own tax over the years you draw income, rather than paying it all in the sale year.
There are real limits on what can go into one. A charitable remainder trust cannot hold S-corporation stock, because owning it would break your S election, and putting operating business interests inside raises a separate tax on business income earned within the trust. In practice, owners contribute holding-company or other interests structured to avoid these problems, sometimes through a blocker entity. The mechanics are technical enough that this is firmly a job for your tax counsel, and the interests have to be confirmed as eligible before anything is transferred. The reason to bother is the same as always: funded in time, the trust turns a taxable sale into a tax-free one and an income stream you control.
Donor-advised funds: simpler, same timing
A donor-advised fund is the lighter-weight cousin. You contribute to a charitable account, take your deduction now, and recommend grants to charities over time. The sale-year value comes from contributing appreciated business interests before the deal is certain, so the fund sells them tax-free and you avoid the gain on the donated slice. If you have held the interests more than a year, you generally deduct their fair market value, subject to a limit of 30 percent of your income for gifts of appreciated property, and you can carry any excess forward for five years. The Hoensheid gift was to a donor-advised fund, so the timing rule and the qualified-appraisal requirement apply here with full force.
What 2026 did to the charitable deduction
Recent law reshaped what a charitable deduction is worth, and not in the giver's favor. Three changes matter for a high-income sale year.
- There is now a floor. Only charitable giving above 0.5 percent of your income counts toward a deduction, so the first slice of your giving each year no longer helps your taxes.
- There is a cap. For taxpayers in the top 37 percent bracket, the benefit of itemized deductions, including charitable gifts, is limited to 35 percent rather than the full 37 percent.
- Cash gifts remain limited to 60 percent of your income, with gifts of appreciated property at the lower 30 percent limit.
A published example makes the cap concrete: a taxpayer with $1 million of income who makes a $100,000 gift gets a $95,000 deduction worth $33,250 rather than $37,000. The gift is still worth making if you want to give, but the tax help is thinner than it used to be. One effect of the change is that giving appreciated interests, where the real value is avoiding the built-in gain rather than the deduction itself, looks relatively better than giving cash. Model the actual after-tax cost of a gift in a sale year rather than assuming the old arithmetic.
The estate side: give the rollover away while it is cheap
The other half of pre-sale planning is your estate, and here a sale creates an unusual opening. In 2026 the federal estate and gift exemption is $15 million per person, and it is now permanent and indexed after 2026, with an annual gift exclusion of $19,000 per recipient. A couple can shield a very large amount, but growth beyond the exemption is taxed at death, so moving assets out of your estate before they appreciate is the whole game.
Rollover equity is often the ideal thing to move. Right after a sale, the units you rolled into the buyer's company are typically valued low, illiquid, and a minority position, which is exactly when they are inexpensive to give away. If you gift some of those units now, using part of your exemption, all of their future growth happens outside your estate. If the next sale multiplies the value, that increase lands in your heirs' hands rather than adding to your taxable estate. The rollover page explains how that value can grow, and the after-sale plan puts the gifting decision in context with the rest of your money.
These gifts are usually made into trusts rather than outright. A spousal lifetime access trust lets you move assets out of your estate while your spouse can still benefit from them, and an intentionally defective grantor trust lets the assets grow for your heirs while you pay the income tax, which itself shifts more value tax-free. Both are wrappers an estate attorney builds; the point here is simply that the low-value moment right after a sale is the time to consider them.
The IRS uses a monthly rate, the Section 7520 rate, to value these trusts. In 2026 that rate has favored charitable annuity trusts over grantor retained annuity trusts, or GRATs. As a rough rule, a higher rate makes charitable annuity structures more attractive and GRATs less so, and a lower rate does the reverse. This does not decide whether to plan, only which tool fits best once you have decided, and it is something your estate attorney tracks month to month.
When you should not do any of this
These are strong tools and they are wrong for many sellers. Two situations in particular call for leaving them alone.
The first is when you have no real charitable intent. Charitable trusts and donor-advised funds save tax only because you are giving money away, and you always give up more than you save. If you would not part with the money but for the deduction, the numbers do not work, and a well-meaning advisor who pushes a charitable structure on someone who does not actually want to give is doing them no favor. Give because you want to; take the tax benefit as a bonus, not a reason.
The second is when the deal is already signed or practically certain. Every charitable move on this page depends on acting before the sale hardens, and once a letter of intent has matured into a near-certain deal, that window has closed for this sale. Trying to force a gift through late invites exactly the result the Hoensheid donor suffered, where the deduction is lost and the gain comes back to you anyway. If you are already under contract, turn your attention to what still works after a sale: gifting appreciated securities from the new portfolio, bunching future gifts, and the estate moves on your rollover, which do not depend on the sale timing. The after-sale plan covers those.
What to do next
Ask yourself the honest question first: do you actually want to give, or plan your estate, or are you reaching for a deduction? If the intent is real and your sale is still uncertain, the timing window is open and worth using well. Bring in your CPA and an estate attorney before a letter of intent hardens, decide whether a charitable remainder trust, a donor-advised fund, or a straight gift of interests fits, and line up the qualified appraisal that Hoensheid shows you cannot skip. If your estate is large, look hard at gifting rollover units now, while they are cheap. Then model the whole picture, the gift, the tax, and what is left, in the after-tax proceeds calculator, and read the how a sale is taxed and QSBS pages so the charitable plan fits the rest of your tax picture. If you want help deciding whether any of this belongs in your plan, and hearing plainly when it does not, that is what a first conversation is for.
Questions people ask
Why does the timing of a charitable gift matter so much?
Because the tax benefit depends on giving the business interest away before you have effectively already sold it. If you donate stock in your company to a charity before a sale is certain, the charity sells it and pays no tax, so the built-in gain funds your giving instead of the IRS. But if the deal is practically certain when you give, the IRS applies the anticipatory assignment of income rule and taxes you as if you sold the stock yourself and then donated the cash. Same gift, very different result, decided entirely by when you act. Revenue Ruling 78-197 and the Dickinson and Hoensheid cases draw that line.
What is a charitable remainder trust and when do I fund it?
A charitable remainder trust, sometimes a CRUT or CRAT, is a trust you fund with an asset before it is sold. The trust then sells the asset without paying tax on the gain, pays you an income stream for a term or for life, and gives whatever remains to charity at the end. You get a partial charitable deduction up front and spread your own tax over the years you receive income. The key is to fund it with business interests before the sale is practically certain, for the same timing reason as any charitable gift. Fund it too late and the tax-free sale inside the trust is undone.
Can I put my S-corporation stock into a charitable remainder trust?
No. A charitable remainder trust cannot hold S-corporation stock, because a trust of that kind is not a permitted S-corporation shareholder and its ownership would end your S election. There are also problems putting operating business interests into these trusts because of a tax on business income earned inside them. In practice, owners contribute holding-company or other interests structured to avoid those problems, and the details are technical enough that this is not a do-it-yourself move. Your tax counsel has to confirm what can go in before anything is transferred.
What is a donor-advised fund and how does it fit a sale?
A donor-advised fund is a charitable account you contribute to now, take the deduction for now, and recommend grants from over time. Like other charitable gifts, contributing appreciated business interests before the sale is certain lets the fund sell them tax-free, so you avoid the gain and support charity with the whole value. If you hold the interests more than a year, you generally deduct their fair market value up to 30 percent of your income for appreciated property, with a five-year carryforward for anything over the limit. The Hoensheid case involved a gift to a donor-advised fund made too close to closing, so the timing rule applies here just as strongly.
What did the 2026 rules change about charitable deductions?
Three things, all of which shrink the benefit for high earners. There is now a floor: only charitable giving above 0.5 percent of your income counts as a deduction. There is a cap: for taxpayers in the top 37 percent bracket, the benefit of itemized deductions is limited to 35 percent rather than the full 37 percent. And cash gifts remain limited to 60 percent of income. One published example shows a taxpayer with $1 million of income making a $100,000 gift getting a $95,000 deduction worth $33,250 rather than $37,000. The gift is still worthwhile if you have charitable intent, but the arithmetic is less generous than it used to be, which makes giving appreciated interests, and avoiding the gain, relatively more attractive than giving cash.
Should I gift some of my rollover equity to my heirs?
Often yes, if your estate is large and the rollover is still cheap. Right after a sale, rollover units in the buyer's company are frequently valued low, illiquid, and minority, which is exactly when they are inexpensive to give away. Moving them out of your estate now, using part of your $15 million exemption, shifts all of their future growth to your heirs at a low gift-tax cost. If the next sale multiplies the value, that growth happens in your children's hands rather than yours. Trusts like a spousal lifetime access trust or an intentionally defective grantor trust are common wrappers for this, and they need to be set up by an estate attorney.
Are annuity-style charitable trusts better than GRATs in 2026?
It depends on interest rates, and in 2026 the rate the IRS uses to value these trusts, the Section 7520 rate, has favored charitable annuity trusts over grantor retained annuity trusts, or GRATs. Roughly speaking, a higher rate makes charitable annuity structures more attractive and GRATs less so, while a lower rate does the reverse. This is a timing detail your estate attorney watches, because the same family goal can be reached through different trusts and the current rate tilts which one works best. It is not a reason to act, but it can shape which tool you choose once you have decided to act.
When should I not do any of this?
When you have no real charitable intent, or when the deal is already signed. These tools reward genuine giving and forward planning, not tax avoidance bolted on at the last minute. If you would not give the money away but for the deduction, the numbers rarely work in your favor, because you are giving up more than you save. And if your sale is already practically certain or under contract, the charitable timing window has closed for this sale, and pushing a gift through anyway invites the exact outcome the Hoensheid donor suffered. In both cases the honest answer is to skip it.